Fund selection in the time of coronavirus
Do you actually need to meet a manager?
Would you entrust your hard-earned savings, or those of your clients, to someone you had never met? Surely you have to meet them first – after all, we all hope we are good judges of character.
Fund selection – simple but not easy
Until March 2020, the fund selection process was, it might be said, simple, but not easy.
Find a fund that meets your selection criteria, using your analytical skill to interrogate data points such as the fund’s holdings, performance or trading history. Later, over a series of in-depth, face-to-face meetings, you would check that a fund was actually being managed the way the glossy marketing material said it was.
Different fund selectors around the industry use different approaches to meeting fund managers, but for everyone it was an integral part of the process. For some, they were akin to a criminal interview, analysing body language, testing how the manager reacts under pressure. Some firms even employed psychologists to sit in meetings just to watch a manager’s behaviour, to try to get an early sign of a manager losing their confidence, perhaps.
Others took a less confrontational approach. But when coronavirus took away that crucial face-to-face interaction, things had to change – and fast. Processes needed to change, and decisions would have to be made in a different way. ‘Seeing the whites of the eyes’ and making informed decisions about the quality of a fund manager was a lot harder through a screen. Not meeting managers in person would see us make worse fund selection decisions, surely?
The benefits of not meeting fund managers
Science would say not to worry. Psychologists have shown that humans tend to interpret information to support whatever is the current leading view in a situation – something called ‘assimilation bias’. Confirmation bias says we read or listen to views that support our way of thinking. We find it too uncomfortable to listen to opinions that are different to our own. And despite our best efforts, humans tend to over-rate the quality of views of those perceived to have authority. We are also generally terrible at working out if someone is telling the truth, or trying to pull the wool over our eyes.
In short, there should be huge benefits from not meeting fund managers in person. One can’t get swayed – unintentionally of course - by a slick presenting style or an important sounding job title. You spend your time more efficiently, taking in multiple views at online conferences rather than in a cavernous hotel ballroom. By not being around your competitors at industry events, you are less likely to succumb to peer pressure, decisions skewed because you or your colleagues are worried about being out of step with your rivals. And whilst you miss talking about funds with team-mates in person, being free from the distractions of the office definitely allows you to think more deeply and without interruption when you need to.
The importance of experience
The meeting is just the end of the process however. Before even agreeing to a meeting, we spend many hours analysing a fund’s holdings and performance in a myriad of different ways, thinking deeply about how it is managed, trying to establish whether it is good enough for us to recommend to clients. It is this body of work, undertaken over many weeks and months that makes what we do so different to those fund tips you might read in a weekend newspaper.
The Barclays Manager and Fund Selection team has many grey hairs, metaphorically and literally. With an average of 15 years analysing hundreds if not thousands of funds and their managers over the course of our careers, we have seen and heard from ‘the next big thing’ of investing many times. That collective memory is invaluable and helps us make better investment decisions.
If there is a risk that you forget what you have learned, your colleagues will quickly remind you in a forthright but constructive way. The debate and challenge our team has today over a video conference is no less robust than it was when we all sat in a room together, although we still don’t have a crystal ball able to predict future market moves. Ultimately, what really makes a difference is not meeting a fund manager in person, it’s having the knowledge and experience to know if what they are doing is worth paying for.
Things to consider
The value of investments can fall as well as rise. You may get back less than what you originally invested.
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