from Funds Hub:
The Naked Truth
By Ed Moisson, Head of UK & Cross-Border Research at Lipper
Do independent asset managers perform better than bank-run funds?
Lipper was recently approached to analyse the difference in performance between funds operated by broader financial services companies (banks and insurers) and those managed by 'pure play' asset managers.
This research came in the wake of comments made by Peter Hargreaves, founder of IFA Hargreaves Lansdown, who said in September that many funds in the UK run by banks were "seriously crap".
With the temperature apparently rising, it might be a little foolhardy to enter such a debate. Yet objective analysis is surely where independent fund researchers can best provide a useful contribution. Besides, it might be gettin' hot in here, but I for one will not be takin' off my clothes.
For those wanting the details of my approach, please scroll to the foot of this article. For those with shorter attention spans, we can cut to the chase and reveal that for 'pure players', or what are sometimes called independent asset managers, the greatest proportion of funds were most commonly in the first and fifth quintiles (the worst and best relative performers), presenting a u-shaped curve for the distribution of these groups' fund returns. This pattern was most pronounced for 3- and 5-year performance, while over 10 years the differentiation between quintiles is smaller.
Click here for the charts for UK-domiciled funds: http://r.reuters.com/ren77r
I blame the fund managers
I’ve been building up a couple of dummy funds on Reuters’ new Portfolio tool. Not only is it a welcome diversion from actual work, but it allows me to test the mettle of the fund managers we speak to, and check out the guidance offered by the Lipper Leader fund rankings.
One of my portfolios uses the stock picks and short ideas offered up by the managers we interview for the many FUND VIEW stories which dot the Reuters wire. The other simply picks some of the funds which score highest across the Lipper fund sectors.
In theory, it gives me ample room to lay blame elsewhere when the dummy funds inevitably go belly up and I’m forced into a fire sale of assets to repay my dummy investors with dummy money. In truth though, I’m going to set the asset weightings and decide when to buy and sell so any abject failures will be more fairly laid at my door.
The early results, in fact, are pretty encouraging.
The Fund Viewer stock picking portfolio has delivered me a comforting 8 percent return since I put it up on Sept 25 (my wedding anniversary — must be a good omen) and that’s with a ridiculously cautious 36-percent weighting in cash, as well as some equally ridiculous single-stock exposures caused by misreading the denominations. (That little ‘p’ is pence folks, big ‘P’ is pounds)
My Fund Leaders fund of funds has even less of a track record, but has still managed close to 2 percent returns since Oct 6.
Both funds are outperforming the FTSE Europtop 100 index, my chosen benchmark, by more than 18 percent on a three-month view. I’ve not exactly been scientific about choosing the index, but fortunately my dummy investors have notoriously poor due diligence standards.
