What makes a good fund manager?

Christine St Anne | 18 Feb 2011

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Christine St Anne is Morningstar's online funds and ETFs editor.

 

Awards season is well and truly upon us all. As Hollywood gears up for the 83rd Annual Academy Awards, Morningstar is preparing for its annual Fund Manager of the Year Awards 2010.

The annual awards look at how well investment managers have performed and delivered value to investors.

Fund managers are nominated across eight categories including Australian equities - large cap, Australian equities - small cap, listed property, international equity, fixed interest, multi-sector, emerging fund manager, and an overall award for fund manager of the year.

So what makes a good fund manager?

Morningstar's co-head of fund research Tim Murphy says the award judges investment managers on three factors.

These include performance for 2010, long-term performance and a qualitative conviction in the manager.

Last year, fund managers persisted with challenging markets. Morningstar's December quarterly survey revealed that most Australian fund managers continued to struggle to beat the index.
 
International funds were hampered by a rising Australian dollar, while Australian listed property continued to languish.

The fixed-interest sector also posted mix results, with more than half of the bond managers in Australia beating the index and most international bond managers failing to beat the index.

The confronting market conditions narrowed the pool of managers up for nomination. All managers nominated managed to beat the index.

Unlike Hollywood's Academy Awards ceremony, which honours individual achievement, Murphy says Morningstar's awards are about the quality of the overall investment firm in each particular asset class.

Morningstar's fund research team need to have conviction in the fund manager based on qualitative research.

This research includes the strength of the investment team and the strategy and processes they follow.

"We must ultimately like the manager based on our qualitative research," Murphy says.

 

Sizing up managers

Big does not necessarily mean beautiful in Morningstar's Fund Manager of the Year Awards.

The 2010 honours list includes a mix of big institutional firms and boutique fund managers.

"Size does not matter. We believe boutique fund managers are just as well placed to perform strongly alongside managers owned by the big institutions," Murphy says.

Greencape Capital is nominated in the Australian equities - large cap category, alongside the larger investment firm Perpetual.

Morningstar also does not place emphasis on the size of a fund manager in the international equities category.

"Just because an investment firm has one million people around the world, it does not necessarily make them a good investment manager," Murphy says.

Boutique managers Magellan Asset Management and IFP Global Franchise are both represented in the international equities category, together with global investment firm Schroders.

The Morningstar Emerging Fund Manager of the Year Award, however, is purely based on qualitative research.

"In this category, the manager typically has less than a three-year performance track record. So we are really focusing on the potential of the fund manager to deliver long-term returns to investors in the future," Murphy says.

Indeed, in 2007 Greencape Capital won the Morningstar Emerging Fund Manager of the Year Award. This year, the manager is represented in the Australian equities - large cap category.

It is also worth noting how institutional investors choose fund managers.

As head of Australian equities and property for Ibbotson Associates, Fraser Murray is responsible for appointing managers to the firm's multi-manager products.

For Murray, the key factor in choosing a manager is the quality of the organisation.

"In the institutional market, we don't focus on brand. We tend to favour managers who are privately owned," he says.

"We find these managers are the most investment performance-oriented, have the strongest leadership and stick to their discipline during adversity. These attributes give them a competitive edge over other managers," Murray says.

Morningstar's awards highlight the importance of fund managers staying true to their strategy and philosophy.

While Hollywood stars can sometimes fade, fund managers need to be in the game for the long term.

And the nominees are ...

Fund Manager of the Year

Aviva Investors
Perpetual Investments
Schroders

Australian equities - large cap

Greencape Capital
Macquarie High Conviction
Perpetual Investments

Australian equities - small cap

Aviva Investors
Perennial Value
Perpetual Investments

Listed property

Aviva Investors
ING Investment Management Global Property
Vanguard Investments International Property

Fixed interest

Aberdeen Asset Management
Bentham Asset Management
PIMCO/Equity Trustees

International Equity

IFP Global Franchise
Magellan Asset Management
Schroders

Multi-sector

Advance Asset Management
BlackRock Global Allocation
Schroders

Emerging Fund Manager

Epoch Investment Partners/Grant Samuel Funds Management
Realindex Investments
Templeton Multisector Bond

This report appeared on www.morningstar.com.au 2018 Morningstar Australasia Pty Limited

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