“We got momentum, baby! We got the big mo!”
Josh Lyman in the TV series ‘The West Wing’ may have wanted it in a presidential election race, but what of fund management companies? Do asset managers want investors to buy and sell their products as the momentum of fund returns ebbs and flows?
I began wondering about this when faced with comments from two well-respected figures in the funds industry. First, Marcus Brookes, Head of Multi-Manager at Cazenove Capital, so no slouch when it comes to picking funds:
“Some fund managers’ and IFAs’ approach to picking funds is usually quantitative to begin with and it is obvious most guys begin with the stuff that has just done well. It also means you are discounting three-quarters of the sector.”
Next the thoughts of Edward Bonham Carter, Group Chief Executive of Jupiter Investment Management: “You shouldn’t seek that level of consistent outperformance, it doesn’t exist except as a statistical fluke… The industry is flawed, in my view, by implicitly promising or expecting that.”
From this perspective, one of the industry’s main shortcomings – the apparent promise of consistent outperformance by fund managers – becomes more intractable because it is accompanied by investors’ continued willingness to buy funds on this basis. Fund managers’ Gordian knot, if you will.