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Meeting points

Face-to-face sessions with investment firms are an opportunity to get an insight into their products.

Meetings: can’t live with them, can’t live without them. I imagine that many of you probably share the same sentiment and would like to make meetings more effective and less time-consuming.

However, meetings are sometimes the only chance you have to discuss openly a fund in real detail. And if that is the case, it is important to ask the right questions.

Take investment management meetings, for example. There are the usual questions that can be asked about the person managing the fund and the history of the company in question but how far are you probing? Are you asking the hard questions that are capable of generating insightful responses, particularly as many of the risks associated with investing client money lie not only with the fact that the value of investments can fluctuate but also with how the company is run?

At the upper end of the scale, honing in on the types of business-related risks that may affect the fund manager’s performance can be worthwhile, particularly where the company is very small. If a company has robust contingency plans that can cope with potentially damaging situations, it is likely to mean that it takes managing other people’s money seriously too.

This type of situation is, thankfully rare but other corporate considerations are worth examination.

Prominent among these are talent and succession planning. Finding out what would happen if the investment manager in charge of the fund left the company or took on another fund or team, is extremely important. Change is a fact of life but how the investment firm deals with it and how it communicates it are important measures of its commitment to investors.

Understanding the investment style of a fund is also vital. How the fund manager invests can determine whether it is an appropriate approach for your client.

If there is a bias to one particular style, such as growth, value or “growth at a reasonable price”, a fund is likely to perform well in some markets and weaker in others. Ask about how many stocks the fund manager usually holds and the weightings. This can show how much conviction the manager has in his stock selections. And beware the manager who cannot explain why they hold every stock in their portfolio.

By considering both these questions, you should be able to form some ideas about how the fund is likely to perform in different market conditions.

The higher the stock weightings, for instance, the more likely the fund is to experience big swings in performance. An investment firm should be able to explain how a fund has performed in different market conditions and, importantly, why. Once again, beware a firm that cannot explain how a fund’s performance, whether good or bad, has been achieved.

This brings me to investment risk, an area that means different things to different people. For example, having a low or high standard deviation or tracking error is neither good nor bad; it all depends on whether you are looking for a lower or higher-risk fund.

Fund managers are providing an ever increasing array of statistics. These should help advisers in their product selection, as long as it is clear what they represent.

Finally, it is important to find out why the firm and the fund manager believe their product is the best one in the marketplace. If they can explain with conviction and clarity what they believe makes them superior to the competition, they are likely to be forward-thinking and not just using past successes as a guide to the future.

Finding out whether or not the manager of the fund is invested in his or her own product can also illustrate commitment.

Although it may seem like fund manager question time, it is in the interests of putting customers first and ensuring that they are treated fairly. Not everyone will have the opportunity to ask the fund manager these questions face to face but we believe the onus is firmly with investment firms to be willing and able to answer them when asked.

Ian Pascal is marketing director at Baring Asset Management.


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