Most investors continue to obsess over the fund manager. How will the fund manager make a difference to the fund's performance? How will he negotiate the fund through market upturns and downturns?
The fund manager is perceived as the be-all and the end-all of the mutual fund. As we have reiterated in the past, the fund manager is just that -- a manager; he marshals the resources (quality of research, analyst team, investment systems) at his disposal. Which means that the fund manager is as good as the quality of resources and can't rise above that.
Earlier in an article we had written on ways to evaluate your fund manager. The feedback we had received on the article was very positive.
A lot of investors took a hard look at their own fund managers to ensure if they conformed to the parameters outlined in the article. Some investors weren't sure how to go about ascertaining if their fund manager fit the bill because some information on the fund manager wasn't readily available.
We have highlighted how information on some parameters we had mentioned in that article can be acquired and/or inferred quite easily.
1. Investment style
How do you determine if your fund manager just got lucky in the last stock market rally or he was always going to clock that great performance? This involves a little hard work and bit of research on your side.
See the last few months' (at least 6 months) portfolios from mutual fund fact sheets. Make a note of any aggressive churning and sudden shifts in the stock and sectoral portfolios. If you find such streaks of aggression in his fund management, it implies that your fund manager is an opportunistic and did get lucky in the last rally.
If the last 6 months portfolios are steady without sudden shifts, then it means your fund manager has a plan. Personalfn's Portfolio Analyser helps you get a fix on your fund manager's style
2. Does the fund manager adhere to his mandate?
Most mutual funds do not have a detailed mandate. 'Capital appreciation', 'Long-term capital growth', 'Regular income' are some examples of how vague investment mandates/investment objectives can be. As an investor you have little idea how to assess adherence to the mandate when you are not clear about the mandate itself?
Nonetheless, if capital appreciation over the long-term is the mandate, you can check the 3-Yr, 5-Yr and even 10-Yr NAV growth to substantiate faithfulness to the mandate.
To check long-term performance of mutual funds, click here.
3. Does your fund manager walk the talk?
Countries with a developed mutual fund market have 'activist' investors who insist on knowing certain facts about the fund manager.
One point they consider extremely relevant while gauging the fund manager's 'investment confidence' is whether he invests in his own mutual funds. If the fund manager 'eats his own cooking', it's a vote of confidence from the right quarters as far as the investor is concerned.
Admittedly, this kind of information is not easily acquired in the Indian context, as it is not yet a part of the mandatory disclosure norms. At Personalfn, however, we now make it a point to ask fund managers if they invest in their own mutual funds.
So while this information may not be easily available elsewhere, you can expect to read about it in our interviews.
4. Is your fund manager individualistic or a team man?
This is another detail, understanding which, requires some homework on the investor's part. Investors need to understand whether the fund manager does his own thing or he abides by some pre-determined investment processes and systems to nullify the individual's role and promote a team-based approach.
If it's the former (i.e. an individualistic streak), then you have a problem on your hands if the fund manager quits the asset management company (AMC). If it's the latter (team-based approach), then there is continuity even in that fund manager's absence.
A shift to the more reliable and resilient team-based investment approach is getting increasingly evident in the Indian context. For instance, Kothari Pioneer mutual fund schemes (Bluechip, Prima Fund, Prima Plus) were managed with a marked individualistic approach. That changed to a team-based style of investing once Kothari Pioneer was taken over by Franklin Templeton Mutual Fund as the latter promotes this form of investing.
5. Is your fund manager an AMC hopper?
This information is widely available in the letter of offer (of mutual fund schemes), AMC websites and even mutual fund fact sheets.
A fund manager changing AMCs is normal, it's only when this happens at a disturbingly high frequency should investors single him out for attention.
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