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Bigger Fund Managers Are Not Always Better
When it comes to selecting top-performing investment funds and unit trusts the bigger brand is not necessarily better. Choosing the wrong fund by investing with big brand fund managers could cost investors dearly.
Many investors are deluded into thinking that buying from a big brand fund manager will in some way protect them against selecting a poorly performing fund. The big brand managers offer many great funds, but they're also marketing plenty of duds. Just because one fund is a top performer, doesn't mean it applies across that fund manager's range. Investors need to look beyond the brand and more closely at the underlying fund.
In the UK a new kind of fund manager has popped up called boutique investment houses. These are very small companies that specialize in only a few industries. They are specialists in a very small niche within a given economy. Boutique investment houses do not try and be all things to all people. They could care less about being able to offer an investment in all sectors of the economy.
Boutique investment houses have become so popular that they are now gaining market share against the big brand named fund managers. Last year, boutiques beat the larger fund companies in terms of performance. Boutiques took the top 4 spots in terms of performance while big brands like UBS and Standard Life fell in their rankings.
Millions of dollars were wiped off the prices of stocks in the last quarter of 2006 when the economy first turned down. Boutique investment houses, who lost as well, did not lose near as much as their larger rivals. Even in this tough economic environment, boutiques still managed to outperform larger fund managers.
Most investors and even financial advisers have not heard of boutique investment houses because they are so small. As such, very few investors are taking advantage of some of the great investment opportunities these small investment fund managers provide.
Another big mistake most investors make is that they invest in a fund based on the star rankings of the fund manager. How a fund manager performed in the past is not indicative of how he will perform in the future. If the fund manager really is good, he will probably hop around from employer to employer as each offers him more money. So why buy a fund based on the reputation of the manager, with a time horizon of 15 or 20 years, when the fund manager is not likely to stick around for more than a couple of years?
Only 15% of fund managers stay at the same fund for 7 years. A study of the top 50 UK fund providers show that about 75% of fund managers left their fund in the last 4 years. Most of them move to different funds because of offers from competitors. You can not invest in a fund for 10 years or more based on the fund manager when statistics show that fund managers only stay at a fund for 7 years.
You should never keep your money in a fund because of an emotional attachment to the fund company or manager. The only reason you should keep your money in a fund is because of performance.
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