Professional IFA HELP needed for £80,000

Chrismaths

Now there's what's called a self-fulfulling prophecy. If you look at 3 year top performers, then you are likely to find funds that have just taken in a lot of money, because they are top performers over 3 years. Old Mutual went from a £50m fund to a £500m fund after its 3 year anniversary. That's taking historic performance from a small fund, not a large one (Crossy at Invesco probably the exception, but he's got a squillion holdings, and a load in AIM).

Anyway, I'll fill in the blanks:

JPM - £245m
ML - £155m
Pru - £55m

Anything less than £250m is a small fund. These funds usually take the Hoare Govett Smaller Companies ex-IT as a benchmark, partially because it's only changed once a year (which lets them ride some companies up to the FTSE 100 - like Cairn for instance) but mostly because it is defined by companies with a market cap <£1bn. That goes half way up the FTSE250 - so the companies they can invest in aren't as small as you might think. That allows them to take on board more money (as liquidity isn't such an issue).

Large funds are harder to manage. It's as simple as that - although that doesn't mean they are unmanageable, it means they are harder to manage. Therefore you would expect the same manager with a smaller fund to produce better performance than with a large one.

There are innumberable managers who have left successful funds because they were just too big, the marketing guys wouldn't let them cap the fund, and they couldn't manage money the way they wanted. Clive Beagles, Bill Mott, John Wood to name just 3. That's why OM capped the smaller companies fund, why JOHCM will cap their funds, and why Neptune will as well, first state capped Asia Pacific, the list goes on. Oh, and that's why Bolton split fidelity Sp sits.

No one was saying that the smaller the fund, the better the performance - the biggest contributor is obviously manager skill. But a large fund can turn a good manager average.

But of course, you know more about these things.

EdInvestor

Chrismaths said

There are innumberable managers who have left successful funds because they were just too big, the marketing guys wouldn't let them cap the fund, and they couldn't manage money the way they wanted. Clive Beagles, Bill Mott, John Wood to name just 3

Carnet said

Of course there are a very select few such as Woodford, French, Dobell, Smith, McVeigh, Nutt - and Bolton and McCarron up until recently, whose ability allows them to continue to defy gravity.

I can see that there could be a problem if a fund was focussed on small capitalisation stocks and had too much money in it - there wouldn't be enough stock in the most fancied companies to go around. The manager would end up either having to buy bigger companies (eg Cairn) or having to buy extra small companies, which might not perform as well as the most fancied ones.Share proliferation could also make it more difficult to monitor performance, possibly requiring more staff, possibly pushing up costs (City bonuses are so high these days :rolleyes: )

But the fact remains that there are plenty of managers who can "defy gravity" and manage the problems of success.Isn't it better to stick with these guys with the proven record of success, rather than chop and change into new small funds which may or may not turn out to be any good?

I still don't see any reason for concern about big funds that invest in liquid big and medium cap stocks - which is after all what most people want to invest in as it's lower risk.

The only reason Special Sits funds (with a mix of big and small caps) have become popular IMHO is because of Bolton's ability to deliver comparative safety along with high performance, despite holding lots of tiddlers.We shouldn't expect other people to demonstrate similar skills.

Chrismaths

EdInvestor wrote:

But the fact remains that there are plenty of managers who can "defy gravity" and manage the problems of success.Isn't it better to stick with these guys with the proven record of success, rather than chop and change into new small funds which may or may not turn out to be any good?

That's fair enough - it's personal choice. You have to balance many factors when choosing a fund - cost, manager skill, how the fund is managed, what risks are taken - the size of the fund is another one. The style of a fund manager often defines how large his fund can be. Woodford like you say has always fished in Large cap waters, so his fund can be bigger than say a Luckraft, who invests across the market cap spectrum. In addition, there are the buy and hold merchants, like Dobell at M&G, and Ben Whitmore at Jupiter (ex Schroder Recovery) who have a turnover of 30% or less - they can afford to have a larger fund as the extra costs of buying a large stake in a company are offset by the length of holding that stake. But there are also plenty of good managers who have different styles - they may trade more, or run a focussed fund (Robin Geffen, Phil Doel) - or invest across the market. I met a manager last week who said he'd have to change the way he ran his fund once he hit £50m!

That means that each fund has a maximum size it ought to get to without impacting the way a manager runs money. If it goes beyond that point, it is a different fund.

With regard to small (or recently set up funds), it is often simpler than you may think to pick a winner. With the manager merry-go-round, there are often managers who have changed companies who have started a new fund which makes it easier(!), but after that, it really comes down to meeting the fund managers and picking their brains to work out how they manage money, and how they will make money - something I appreciate it's not possible to do for the man in the street.

Fair point though Ed.

wongseefu

Hi guys,

Very heated conversion, excuse me for interrupting but l was wondering for my portfolio (mentioned earlier on) what type of growth would reasonable to say that my funds are doing ok.

l guess the 8%-15% increase for 3 years would be ok taken into acount all the intial charges and annal charges.

Any suggestions?


Regards,

WSF

si1503

I assume you mean 8-15% growth per year for 3 years?

8% growth over 3 years? You'd get better returns from cash!