Recently, Allan Gray reflected on their ideas as to what characterises a good investment manager. We support these views and summarise them below:
The difference between skilful and lucky investment managers is that, over the long term, skill prevails in delivering good investment outcomes.
Skill is involved where you can deliberately drive the outcome of the activity and repeat it.
Past performance is a good way of measuring manager skill. But such assessment should be over the long term and through many varying investment cycles.
However, don’t base your conclusions solely on performance as it can be distorted by:
Appropriate benchmarks:
This is ensuring the risk taken suits the returns achieved. If the benchmark is incorrect, it may appear that the manager has skill by achieving a desired outcome but with incorporating way too much risk, which will lead to disappointment over time.
The opportunity to outperform:
The ever-changing investment market has times of bigger or smaller valuation gaps which provides opportunity to perform. Therefore, to benefit from the bigger gaps, a longer-term measurement will provide a better result.
Investment managers may be constrained in different ways:
Performance may not be comparable as they have different risk mandates, or they follow different benchmarks.
Know the qualitative factors: Philosophy, process and people.
- Philosophy is how the manager thinks about investments. It is important to assess their behaviour relative to their philosophy.
- Process is how the philosophy is implemented. This needs to be robust, disciplined and consistent. A weak process points to a lack of skill.
- People need to be qualified and armed with the appropriate industry experience to implement the process and philosophy.
Investonline: Work. Wisdom. Wealth
Investonline has a rigorous and disciplined process that delivers returns to meet clients’ goals. Our process ensures goals are met by targeting realistic returns through an appropriate investment strategy that incorporates suitable risks.
Our knowledge and understanding of investment managers enable us to select the top-rated managers that will deliver above average returns with the least amount of risk.