What to consider when choosing a fund manager

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Over the past decade, there has been an increase in the number of mutual funds that South African investors can choose from. Currently, there are over 1,000 mutual funds available. Yet nearly a quarter of all unit trust assets are in the top 20 funds, according to Morningstar. Moreover, a third of the assets are invested with only three of the 44 asset management companies in South Africa.

Digging deeper into investor behavior, statistics from the Savings and Investments Association of South Africa (Asisa) show that more than half of local investors’ fund assets are spread across just three of the investment categories. funds: South African multi-asset high equity, South African general equities and the South African interest-bearing short-term category.

This concentration of assets is a potential risk for investors.

“There are asset management firms with robust investment processes and organizational incentives closely aligned with yours, but whose brand may not be well known,” says David Crosoer, chief investment officer at PPP.

How could you incorporate them into your investment portfolio?

Good managers are not easy to find

“Maybe the starting point is accepting that good managers aren’t easy to find, so investors may need to be more open-minded about how to access them. If you invest like everyone else, and you mostly favor funds that everyone has heard of, are you aiming to outperform the average?” says Crosoer.

Specifically, are manager skills disproportionately distributed across a few categories and Asisa management companies? What to look for in a manager?

What to Look for in a Manager

When evaluating a manager’s abilities, it is important to consider where the manager is likely to perform best with their specialized abilities and whether those skills are transferable across multiple investment categories.

Managers with shorter track records should not be left out of the mix, but some qualitative judgment is required when evaluating these managers.

“Start by trying to pick managers that you think are above average over time,” says Crosoer. “While the past is not necessarily an indication of the future, it can establish whether managers have already demonstrated a certain level of skill. Where managers may use multiple asset classes, compare them to their peers. When managers are trying to outperform a single asset class, compare them to a market capitalization index. Try not to focus too much on recent short-term performance or performance that occurred a while ago. long, but also think about why the fund might have a lasting benefit.

Funds of funds or multi-managed funds can also offer an easy entry into portfolios of diversified managers. It is important that the multi-manager can explain how he identifies above average managers and that his track record demonstrates a more consistent performance profile.

Why do you need access to different investment styles

“We believe you should have access to different investment styles to build a well-diversified portfolio, without having to expend resources to do so,” Crosoer says.

“We offer a range of single-manager and multi-manager funds carefully researched and constructed to meet the investment needs, risk appetite and time horizon of the graduate professional.”

The research-driven approach to investing, backed by a multi-manager philosophy, gives members access to the country’s top asset managers in a single solution. The resulting combination of investment styles and asset classes allows members to take advantage of opportunities at different points in the cycle, thereby optimizing portfolio diversification.

“There is no magic number as to how many funds to include in an investment portfolio, but most investors are likely underutilizing the skill set of asset managers that could be accessible in a portfolio. , especially given the concentration of assets in South Africa.While the South African landscape has encouraged asset managers to launch more funds than needed, it has also made it more difficult for investors to identify funds that have a lasting benefit,” says Crosoer.

Too many manager changes could hurt performance

“No matter what you decide to do, remember that one of the biggest contributors to underperformance of the average manager is not because you didn’t have enough managers, but rather because you tried to ‘Bring too many changes to your manager lineup.. So whatever strategy you choose to adopt, you need to commit to trusting your managers because the future will continue to surprise.

PPS Investments takes investing to new heights with unique benefits such as the PPS Profit-Share family network, bonding and cross-shareholding booster. PPS Investments is an authorized financial services provider. For more information, click here.

Presented by PPS Investments.

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