The FSA Spy market buzz – 12 October 2018

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Talking to fund selectors and some home truths – Part II

The FSA Spy market buzz - 06 April 2018

In last week’s column, your humble Spy deviated from his normal acerbic riposte to share insights painstakingly gathered from our fund selection community on their likes and dislikes in fund presentations. If you have not read it, Spy suggests a quick recap here before charging once more unto the breach. Or, less dramatically, reading ahead.

A recap: the most common features of fund decks 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

Items 1 to 3 on the list were covered in Part I. So, what of items 4 and 5? Asset managers are on surer footing with this information. Fund selectors and analysts are hungry for the macro outlook and the fund’s investment process. But danger lurks ominously even in this interesting realm too, for if Spy’s drinking companions are anything to go by, even the most interesting information is reduced to irrelevance if treated incorrectly.

Take macro, a distinctly popular theme in fund decks from New York to Tokyo. Everybody likes to get a bird’s-eye view of the asset class within which the fund is doing its hard graft. Brilliant insights about what is driving a sector are most welcome. They enable story-telling, they often include lofty intelligence and more often than not, it is from this section a juicy anecdote drips out, too.

Therefore, where is the danger, you ask? Well, all of the exciting macro information means precisely nothing if the fund itself does not use macro in its investment process. One fund buyer tells Spy, “There is no shortage of economic insight around. Our CIO regularly updates us on practically every macro theme around. Therefore, if the fund does not really care about the macro environment, the PM has spent 10 minutes telling me something which may be interesting, but really makes absolutely no difference as to whether I should invest in the fund.” Ah, there’s the rub. If you are a bottom up, fundamental stock-picking fund, leave the macro to the trend guys and girls, and rather give the crowd another company example. For Spy this feedback is about relevance. Ruthlessly cull the irrelevant bits as a gardener would prune in early spring.

Finally, Spy comes to investment process. This is arguably THE differentiating factor. After all, every PM thinks they have established a way of thinking about and distilling the market which is unique. Spy hates to be a party-pooper, but, no, the investment process is all-too-seldom truly unique. In fact, the fund selectors and buyers end up seeing, according to them, dozens of very similar presentations about very similar processes from similar fund companies presented by similarly-educated people.

And here is the juicy insight. That is, in fact, okay. There may be an archetypal style for a particular asset class exemplified by one or two well-known funds. Therefore, to save time, fund buyers don’t actually mind and may even prefer it if the PM cuts to the chase and says: “This fund is a bit like X and then this is where we are different.” It is no shame to reference another fund. According to an analyst Spy discussed this with, he was “looking for the variation rather than something radically new”. Speaking about other funds reflects confidence. Mercedes, after all, does not pretend BMW does not exist. The S class gets mentioned in the same breath as the 7 series. We all know the ballpark; now let’s find out which bells and whistles are different.

Spy concludes, with much whisky under his belt, that although info on the team, past performance, stock examples, macro and process may all be shared, it is the manner in which it is done which makes all the difference between a bored buyer and an interested client. If asset management is in fact a science, Spy would argue that fund decks need a touch of art. And for the sake of the fund buyers and the analysts, bear in mind that deaths, directly induced by PowerPoint, have increased by 867% in the last five years alone. Alright, that last stat is a load of nonsense but Spy would not be surprised if it has a hint of truth in it.

 


Spy’s photographers have noticed in print, on billboards, online, and on buses and trams, that asset managers are out advertising in force – as is always the case at this time of the year. Spy is mindful of former CEO of WPP, Martin Sorrell’s plea to his clients: keep advertising steady throughout the year (and throughout the cycle), because, he argued, you are likely to get more cut-through in quieter times and not disappear in the melee in busier times. Spy is aware of only one manager in Asia that does this: Pimco.

On a tram station in Hong Kong:

Around Raffles Place in Singapore:

Of all the adverts submitted this week, this one caught Spy’s eye. It sparked curiosity. One wanted to click and find out more. Hat tip, Pictet.

 

Until next week…

 

 

 

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