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Lipper warns on short-term investing

Lipper’s latest analysis of fund sales, product launch trends and fee developments found that performance was one of the key factors determining each of them.

“The importance of performance cannot be ignored,” says Ed Moisson, Lipper’s head of British and cross-border research. “Profitability remains the most powerful justification of a fund’s fee level.”

Lipper says those managers who are able to build a strong track record are also “clearly in a more powerful position” when pitching to potential investors or their financial advisers.

According to Lipper, first-quartile global equity funds over one year have achieved average quarterly net sales of £282m. Third- and fourth-quartile funds have suffered net outflows of £7m and £29m respectively.

With such a concentration of fund sales, the importance of managing funds that can stand out from the crowd is clear. While a company’s brand and its relationship with inter mediaries are crucial, it cannot escape the need for a track record to impress.

Furthermore, a fund manager’s personal track record is not enough. Lipper says that without performance numbers for the fund itself, a key string in the marketing bow is missing.

Being judged by their short-term performance numbers, however, is a challenge for fund managers. Most have seen their historical performance hit by the financial crisis, so they are under pressure to make up for it.

Within bond funds, for example, the three-year performance data explains why investors have allocated to this asset class from the start of the financial crisis, with a particular preference for emerging market debt.

Lipper says the average five-year performance of emerging market equities would show the effects of the crisis in 2007 and 2008, as well as the subsequent rally and benefits of diversification.

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