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Incredible investors: are they born, trained or made?

Does nature or nurture produce the best fund managers? We asked multi-managers, whose job it is to pick the best performing funds.

by Jennifer Hill on Feb 17, 2015 at 11:28

BORN

Sheldon MacDonald senior investment manager at Architas, the multi-manager business of AXA, said the most important traits of good managers were those they were born with: intelligence, bravery and dispassion.

‘This doesn’t mean a lack of passion and enthusiasm,’ he said. ‘This describes an analytical, objective and measured frame of mind when making investment decisions.

‘While this skill can be learnt, it is most effective when it is a natural talent. This should aid consistency: decisions consistent with the interpretation of the evidence and an investment strategy consistent with the stated goals of the fund.’

He highlighted Citywire AAA-rated co-managers James Lowen and Clive Beagles as running a highly disciplined approach, with every stock in their JOHCM UK Equity Income fund having to yield 10% above the index.

Born to communicate

MacDonald said the ability to communicate, a soft skill, was another important characteristic of good fund managers. He cited A-rated Alister Hibbert of BlackRock European Dynamic as being open and honest with investors.

‘Alister had a very successful 2013, but performance slipped in 2014 and he came in slightly behind the benchmark,’ said MacDonald. ‘He was clear in his communication about what he was doing and why, and most importantly why decisions he had taken had not worked out.’

Nick Peters, a portfolio manager at Fidelity Solutions, highlighted Citywire AA-rated Nick Train, manager of the Lindsell Train UK Equity fund and Finsbury Growth and Income (FGT) investment trust and Nigel Thomas, manager of AXA Framlington UK Select Opportunities, as two ‘highly regarded’ managers with a ‘natural gift’.

Fidelity includes both of them on its select list of recommended funds and holds the Lindsell Train portfolio in its Multi-Asset Open Adventurous fund.

‘While their experience, personalities and investment upbringing may be different, they are linked by a deep and genuine interest in the companies they invest in,’ said Peters.

TRAINED

The chartered financial analyst (CFA) designation has become one of the most highly regarded qualifications in investment management.

Earning this charter involves serious study of ethical and professional standards, financial accounting, quantitative analysis, economics, fixed income and equity securities, asset valuation and portfolio management.

There has been little research into the tangible benefits of holding CFA status, but a study of mutual equity funds from July 1988 to December 1992, published in the Financial Analysts Journal in 1994, found that those run by at least one CFA-designated manager were riskier but better diversified than others.

A study in bravery

Architas rates Ed Legget, Citywire AAA-rated manager of the Standard Life Investments UK Equity Unconstrained fund, as a CFA charterholder who takes a brave approach to fund management.

‘By definition, the only way to outperform the average is to be different from the average,’ said MacDonald, himself a CFA charterholder. ‘But when it comes to putting one’s reputation on the line, managers might be tempted to temper their instincts and instead choose career preservation: this route will not make you a truly great manager.’

While most benchmarks weight stocks according to market capitalisation, Legget’s fund differs in that its benchmark gives equal weighting to all constituents of the FTSE 350.

‘This equal-weighted approach forces him to think carefully not only about which stocks to buy, but also which stocks to leave out,’ said MacDonald.

Legget said attaining CFA status in 2005 had proved helpful in his personal development as a fund manager. ‘It broadened my understanding in terms of investing outside the asset class, but the strength and consistency of the fund’s performance is mainly due to Standard Life’s robust “focus on change” investment process and the truly unconstrained approach I’m at liberty to take,’ he said.

MADE

Some investment houses encourage their best managers to train others, such as Anthony Bolton at Fidelity Worldwide Investment, who took a string of ultimate successors under his wing.

While academic or professional qualifications are an ‘interesting attribute’, it is experience and on-the-job training that is of utmost importance to Aviva’s multi-manager team, said head of funds research Ian Aylward. ‘The finest managers have a natural skill set that is inquisitive, analytical and sceptical,’ he said. ‘In the early years, this approach is harnessed by working alongside and being mentored by more seasoned colleagues.

‘Ultimately, leading managers hone their skills by building up their own track record of experience and learning from their mistakes.’

Moulded managers

Aylward believes Investec Asset Management’s Alastair Mundy is a ‘made’ manager, having been trained by Citywire AAA-rated Chris Burvill and colleagues, who helped to develop his contrarian approach in his early days.

Citywire A-rated Angus Tulloch, meanwhile, first received on-the-ground training with Cazenove, which sent him to Hong Kong to work as an investment analyst more than three decades ago. Today, he heads First State Investment’s Asia Pacific and global emerging markets team.

‘Over a quarter of a century he has remained humble, learning from his errors,’ said Aylward. ‘He has created a legacy of a $30 billion [£20 billion] franchise that has returned over 50% more than the benchmark in the past decade alone.’

François Zagamé, multi-manager at Old Mutual Global Investors, cites Andrew Dalrymple at Aubrey Capital Management as a manager who has learned from others and his experience over many years.

‘In the investment management industry there are very few experienced bad managers,’ he said. ‘They tend to disappear.

‘Managers who have been around for a long time tend to hold the three key traits I look for: passion, self-belief and knowledge.’

More about this:

Look up the funds

  • JOHCM UK Equity Income A Acc
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  • BlackRock European Dynamic A Acc
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  • CF Lindsell Train UK Equity Acc
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  • AXA Framlington UK Select Opportunities R Inc
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  • Standard Life Inv UK Equity Unconstrained Inst
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Look up the investment trusts

  • Finsbury Growth & Income (Ordinary Share)
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Look up the fund managers

  • James Lowen
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  • Clive Beagles
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  • Alister Hibbert
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  • Nick Peters
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  • Nick Train
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  • Nigel Thomas
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  • Edward Legget
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  • Alastair Mundy
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  • Angus Tulloch
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  • Andrew Dalrymple
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