ABCs of Investing - A Day In The Life Of A Fund Manager

  1. The bulk of their time goes into research. Getting all the fundamental analysis and getting to know a company's management is vital.

  2. Portfolio management. Deciding what companies to invest in, putting together a portfolio that suits the mandate of a client, managing it, and making sure it fits the risk tolerance of the client.

  3. And lastly servicing institutional clients and distributors.
    To explain the performance of the fund's portfolio and get feedback with respect to their risk tolerance, attitudes and the overall understanding of the fund.

Things to know about your fund manager:

  • Investment expertise & experience
  • Educational qualifications
  • How long he/she has been with company
  • How long he/she has been managing fund


Question to Ask

  1. What is the fund manager's investment philosophy?
    The investment philosophy refers to the fund manager's belief system on investing. Based on his philosophy, he will decide exactly how to put your money use.

    What do they want to achieve out of this money that they are managing? What is the objective of this investment? What kind of returns do they want to achieve within the way of getting these goals, what are the parameters they have set for themselves in which they cannot go beyond, which they have to stick to? So the fund manager really has got to keep within those promises of what they want to achieve and how they want to achieve it.

  2. What is the fund manager's track record?
    Although a fund manager's track record cannot guarantee that he or she will make money for you in the future, it still acts as an important guide to a likely future performance.

    Take for instance a fund manager who has done well 95% of the time for the past 10, 20 years. Then you can safely assume that it's highly that he will do well in the years ahead. For example a fund manager who has not done well most of the time, the last 5, 10 years, then you can safely assume that he's unlikely to do well in the years ahead. Using a sporting analogy, if a sprinter has never broken 10 sec in a 100 metre race, then you can safely assume he is unlike to break the 10 sec barrier.

  3. What is the fund manager's experience?
    It's important to find out where his experience lies. If the fund manager is a star performer, some would even say, invest in the fund manager. If a star manager who has done particularly well leaves the firm, then the decision is a straight forward one, have your money follow wherever he goes. Investment is a people's business, where investment decisions, especially good investment decisions are made by people. Not by computers or organisations.

    But remember, even a star manager relies on research and technical support from other team members. So whilst you should consider following him, also consider whether he can perform to the same level in a different environment without the same kind of team support.

    Remember, although it's important to find out about the fund manager's qualities... very few funds rely on just one individual.


How to Get Information About Your Fund Manager?

  1. To find out information about a particular unit trust, the fund's prospectus is a good place to start. It contains valuable answers such as, what's the investment objective of the fund and who the fund manager is.

  2. Ask the financial advisor who is selling the fund to you. If you are not able to obtain that kind of information, then you are probably not ready to make any investment decision.

  3. When you are putting your money to use for the long haul, be specific on what you want to do. And find a fund manager that can help you achieve those goals. Once you are certain on what you want to derive from your investment, then choosing the product, the fund manager and even the way you spend your money, will fall into place. It's when you don't have a plan, when you are spontaneous about investing, is when you falter.


Mistakes

  1. Do not party away your money by treating unit trusts as you would an IPO launch.
    An IPO mentality does not help as unit trust prices do not operated the same way as equity prices. The price of a unit trust depends on the fund's Net Asset Value (NAV) , and that can only be measured over a period of time.

  2. Circumstances can change very quickly that can impact the way your money is being used.

  3. It is important not to have unrealistic expectations on performance. Because only with realistic expectations, you are likely to make sensible decisions. For instance equity funds, you could expect 8 to 10 per annum over a long period of time. And for bonds you could expect 3 to 5 % pa. Only with realistic expectations you are unlikely to end up with great disappointments.


Questions to Ask

  1. What is the expense ratio?
    The expense ratio compares how much money is spent in order to generate returns in a fund for a given period of time. It takes into account expenses such as management fees. A higher expense ratio means more money is being spent to generate returns.

  2. What is the portfolio turnover?
    The portfolio turnover is the rate of trading activity in a fund's portfolio of investments. This means that, if the percentage change in the portfolio turnover is high, the fund manager is constantly changing the companies to invest in, an example of churning. Unit trusts are supposed to be long term investments so churning should be at a minimal.

    If you see that the portfolio manager have been changing frequently every month, then that probably some warning sign for you that the portfolio manager is not very stable and so that will probably hurt the performance.

  3. What are the Top current 10 Holdings?
    Look at the fund's top 10 holdings and see how often these top 10 holdings change. That will give you a good idea on how frequently the fund manager churns a portfolio. If a fund manager changes his or her mind frequently, you should ask why.