Are star fund managers starting to lose their allure? You might not think so, given the number of column inches devoted to Neil Woodford’s decision to quit Invesco Perpetual and launch a new equity income fund with Oakley Capital.
But I wonder whether more seismic market movements might be dimming their lights within the investment firmament?
One of the consequences of the RDR has been a new wave of DIY investors. I think there is already clear evidence that far more ordinary consumers – the so-called mass affluent – are starting to take control of their own Isa and Sipp portfolios.
Many of these are happy picking which funds or ETFs to invest in. This will hopefully lead to more people undertaking their own research about the fundamentals of investment, and having a greater understanding of where their money is going. This does not mean these decisions will always pay off – there will still be “bubbles” and those investing in funds that turn out to be stinkers. But I think this process will mean there is less of a reliance on “star names”.
I think this is reflected in the way investment issues are now covered – by the press and even in the information investment houses put out themselves. Today one of the key issues is cost: whether it is fund management charges or platform fees. (And star fund managers are rarely cheap). There is also more emphasis on risk, and how investors can manage this by building a balanced portfolio.
This is in stark contrast to a decade ago, where much of the coverage on investment markets – and Peps and Isas in particular – focused around the cult of the star manager.
Then there were countless profiles of such luminaries as Neil Woodford, Anthony Bolton, William Littlewood, Brian Ashford-Russell, Roger Guy, Bill Mott and so on. There were articles trying to identify “the next big name” as well as the inevitable think piece explaining why a key star manager had spectacularly under-performed over a particular period. The answer, if I remember rightly, was usually that they had bought the wrong stocks. Alhough this was invariably couched in more complex explanations involving “cyclical readjustments”, “alpha co-efficient” and “favoured more of a bottom-up approach”.
I don’t mean to sound trite. There is a serious point in this. For starters, if you look along that list of names, it occurs to me that most of these managers did not have similar success when they moved on to other funds or companies. This may have undermined the notion that there are champion stock pickers out there who can beat the odds.
More recently other names have come to the fore, but I don’t think many have quite the reputation of these former big beasts.
And as those excuses show, even the best fund managers cannot beat the market all of the time. Now, I know there will be a number of you now muttering as you read this: “Well of course they bloody can’t. What on earth do you expect!”
But I think, in the past, many investors did expect this. Or at the very least expected them to beat the market the vast majority of the time. A month or two off the boil was probably tolerated, a year or more most definitely not.
Does this undermine the role of advisers? I don’t think so. Fewer may need advice on which fund to pick for this year’s Isa. But people will still need help with the nuts and bolts of financial planning.
And the star fund manager is unlikely to burn out completely. Many of these DIY investors will no doubt build core holdings of low-cost passive funds.
The star fund manager may be relegated to a satellite position for more daring investors, where they will hopefully defy gravity for a few years at least, helping boost overall returns.
Emma Simon is a freelance journalist