The FSA Spy market buzz – 05 October 2018

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Talking to fund selectors and some home truths – Part I.

The FSA Spy market buzz - 06 April 2018

Your humble Spy has been out in the field this week chatting to the vibrant fund selector and analyst community. He has been researching what people are buying, what they are recommending and what they are interested in hearing about.

During this extensive and – it must be said – rather alcoholic week of discussions and debates, Spy asked the selectors what they really felt about the regular presentations they receive from asset managers. The feedback was a revelation that could, quite frankly, fill a small book, perhaps even a large one.

Some very strongly-held views emerged, especially as the glasses of Macallan, Johnnie Walker and Yamazaki disappeared while Spy was extracting this information. And so, in the spirit of enlightenment and sharing, Spy is going to depart from his usual gossip, innuendo, misinformed conjectures and moderately-smug observations about wealth management marketing. Instead, over this week and next, Spy is providing some unvarnished truths about the information that is regularly shared by asset managers.

Spoiler alert: asset managers are very seldom radically different to each other – in fact quite the opposite.

It turns out that asset managers have, in their collective wisdom, come up with five major themes that regularly populate their fund sales-decks – no matter how the content is disguised. These are:

  1. Their team’s structure
  2. The past performance of the fund
  3. Some stock or security examples
  4. The macro outlook for their asset class
  5. Their investment process

Well, number 1 comes in for a pretty healthy drubbing, if Spy’s conversations are anything to go by. More than one analyst said to Spy something along these lines: “Do the asset managers not realise that having a large bunch of people sitting around the world, if you are a large asset manager, is not a particularly unique thing to have, but rather the norm? Telling us you have big team is pretty meaningless in itself. Only if their team has some unique credentials is this worth spending much time on.”

Spy got the distinct impression the only time a ‘team’ slide got interesting is when the team looked or behaved radically different. For example, apparently, there is a value fund manager based in the US where every single team member, bar none, has run a marathon in the last six months in under four hours.

Yes, dear readers, it gave a lot more of a thrill to our fund selectors and analysts to discover some real personality and quirks about a team than that they all went to Ivy-league universities, got themselves an MBA and then a CFA and then bought the identical, metaphoric, dark-blue suit and white shirt. Therefore, here’s a tip: if you are going share info on a team, go hunting beyond their job titles, academic credentials and locations – unless you want to run the very real risk of boring the buy-side into a gentle slumber before you have even really got going.

Past-performance slides. Exciting, aren’t they? Well, yes and no, for it turns out that number 2 on the list of standard items that asset managers present was a bit hit-and-miss, too. The fund selector community is not dumb, far from it – they know the funds being presented tend to be funds that have done well. So, (un)remarkably, the typical performance slide is almost always going to have a rather pretty line that starts in the bottom left and winds its way up to the top right. And, what do you know, that is not particularly exciting in itself.

As one Swiss selector said to Spy: “I don’t mind seeing a positive performance chart, but the portfolio manager better use the slide to help tell the story. Explain the performance; tie it in to stock decisions or, perhaps, use the data to describe exit and entry points in key positions. Help me understand the performance! Otherwise it is just a cow dangling his bells.” Perhaps that final expression is more common in the Alps, but Spy gets the point immediately. Performance comes alive when it is aides understanding the way the PM manages money – and not just as a willy-measuring contest.

Stock examples. Now we are getting to the heart of the matter. Fund buyers do, in fact, really enjoy these and number 3 on the list is appreciated. They love hearing about interesting companies the portfolio manager has painstakingly hunted down. They are only too thrilled to learn about the hidden gem from the German Mittlestand (which nobody has heard of) making engineering widgets for the ice cream industry which the sector simply can’t do without – which, in turn, gives the mostly family-owned company an unassailable nett 43.1% margin and so on and so forth.

Yet, even with such juicy information, it is easy to still bore the selector to death. How, you ask? Well, for one thing, don’t give your stock examples from your top 10. One jaded Hong Konger said to Spy: “Why on earth do I want to hear about a company in the top 10, when it is probably held by 10 other funds and is the kind of information I could just grab from a fact sheet.”

If you are going to take up the analyst’s time, you are going to need to share more than the info already available in your fact sheet. However, it does not stop there. More than a few selectors said to Spy something to the following affect: “Something that annoys, is only giving positive examples.”

One selector put it like this, with an emphatic Cantonese passion: “I mean, come on, a fund has more than 50 holdings, if you can’t find one or two decent stocks to share, why bother pitching up? A few positive examples are to be expected. But, I also want to hear about something that has gone wrong, too. Then I can think about how this PM sees the world during tougher times.”

Spy is not one to disagree with such passionate views. For Spy’s money, the negative example also shows a touch of humility, which in active management, is usually required from time to time.

In Part II next week, Spy will share insights on the dangers and opportunities with the most popular sections of fund decks: macro outlook and the investment process. Stay tuned.

Meanwhile, the advertising is ramping up. Spy’s photographers have been spotting new ads almost daily.

In Hong Kong, Franklin Templeton is promoting its Templeton Global Equity Income Fund in both the MTR and on the tram station.

Pictet Wealth Management has also been spotted advertising about innovation on the South China Morning Post.

Until next week…

 

 

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