Fund managers like to trade off having a unique style. There thousands of funds out there to choose from – the question I often hear from advisers is: what makes this person different?
Sometimes this can be a really tough one to answer. “We invest for the long term” is all fine and good, but so does the competition. “Our research is highly rigorous” is another one I hear often, but to the uninitiated this can sound like the bare minimum a manager should be doing when investors trust them with their money.
There should be obvious differences in allocations between, say, a value fund and a growth fund. But, as Schroders equity value manager Nick Kirrage argued at the firm’s investment conference in Edinburgh this week, the vast majority of growth managers have ended up investing in the same limited basket of stocks, and very few value managers genuinely target value stocks in the purest sense.
According to Kirrage, 90 per cent of all equity managers have a bias towards growth stocks.
“Everyone seems happy to put all their eggs in one basket: growth,” he says.
What about diversifiers? Ways to get genuinely non-correlated assets packed into a portfolio? As multi-asset manager Philip Chandler argued, we have settled into group-think here as well.
When you drill down into a lot of the calls, all the trades end up being made off the same fundamentals. Being long American equities and short Chinese are two sides of exactly the same coin when it comes to predicting the outcome of trade negotiations.
Say you are short US 10-year Treasuries, with a pessimistic outlook for the bond market based on inflation rising and interest rates needing to go up. Being long US banks compared with large cap equities, which one might reasonably hold as an equity position at the same time, is highly correlated, according to Schroders data.
Take ethical, sustainable and governance filters. I’ve seen plenty of these that don’t exclude companies such as Sports Direct and BP, making them little different from regular growth propositions. I appreciate many firms will apply some sort of ESG filter across all propositions, but if you’re going to take ESG seriously, at least narrow the field significantly when it comes to actual asset allocation.
Oddly, I still don’t see too many managers trying to differentiate their calls or proposition based on the cost it takes to execute them. Maybe this is the next frontier for a sector almost certainly set to consolidate.
Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1