The annual Money Observer Fund Awards recognise the actively managed funds that have delivered consistently good, low-volatility returns for investors. Who were the 2013 winners, and can they continue to prosper?
Should managers invest in the funds they run?
Does the person managing your money invest his or her own cash in their fund too? Having a fund manager whose interests are aligned with your own is, on the face of it, a good thing and it's arguably one of the questions to which you should seek answers before investing in an actively managed fund or investment trust.
This information is easier to find in the investment trust space, because they are quoted on the stockmarket. There is no compulsion, however, for UK fund groups to disclose managers' holdings in the funds they run - but it wouldn't hurt to ask.
In the US, it has been mandatory for fund groups to disclose this information since 2006. That helps to show whether the manager's interests are aligned with the investor's.
Here, in the UK, fund management groups including Cazenove, Liontrust Asset Management (LIO), Threadneedle, Jupiter and BlackRock encourage fund managers to invest alongside their clients.
It is arguably something that is more entrenched among smaller, boutique fund groups or partnerships. Indeed, John Ions, chief executive of small funds group Liontrust, says all the group's investment managers have large holdings in the funds they run and only invest in the group's funds.
The principle behind the practice does come with caveats, however. While some groups believe it helps to promote investing discipline, there is also the danger that a fund manager with a significant stake of personal wealth might be inclined to take less investment risk than might be expected.
Imagine that you are a specialist fund manager with a brief to invest across European equities - from small company shares to giants such as Nestlé or Roche - and your employer has encouraged you to invest a significant chunk of your wealth in the fund. The investing decisions you make could vary depending on your age: a 35-year-old is likely to take on more risk than a 55-year-old hoping to retire with a decent nest egg in five years' time.
John Chatfeild-Roberts, chief investment officer at Jupiter Asset Management, also runs the firm's multi-manager funds. He says the selection process used to favour fund managers that invested in their own funds, but Jupiter doesn't pay as much attention to it now. Jupiter discovered that where a fund manager had a significant amount of personal wealth tied up in the fund they run, their risk-taking appetite was often diminished.
That's fine if you are nervous and would prefer to sleep easy. But that can also be achieved by diversifying your exposure across asset classes including shares, bonds, cash and property. And there are multi-asset and "balanced" funds that cater for various tolerances to risk-taking.
However, several investment trusts leap out as explicitly targeting both capital preservation and wealth creation.
Independent Investment Trust, Personal Assets Trust, RIT Capital Partners and Ruffer Investment Company have fallen behind the sector averages over the year as stockmarkets have raced ahead. But the fund managers and directors also have significant stakes in their success.
Investment trust director Lord Rothschild has in excess of £200 million invested in RIT Capital, which has a market capitalisation of £1.9 billion. At Independent, fund manager Max Ward and directors hold around £30 million of the £146 million trust. Frank Rushbrook has more than £4 million in Personal Assets. Jonathan Ruffer, who's stepped back from managing Ruffer, has around £2 million at stake.
A few manager stakes leap out amongst investment trusts whose approach is less constrained by capital preservation concerns. Scottish Mortgage's James Anderson holds shares worth around £8 million; Alex Darwall at Jupiter European Opportunities has more than £10 million of the company; and Anthony Bolton holds nearly £2 million of shares in Fidelity China Special Situations.
The ride with the last-named trio will undoubtedly be more bumpy, but at least you know managers and directors of these trusts are with you come rain or shine.
|FIDELITY CHINA SPECIAL SITU...||241.30p||0.54%|
|JUPITER EUROPEAN OPPORTUNIT...||714.50p||1.56%|
|LIONTRUST ASSET MANAGEMENT||477.46p||-0.66%|
|RIT CAPITAL PARTNERS PLC OR...||1,944.00p||0.21%|
|PERSONAL ASSETS TRUST PLC O...||40,930.00p||-0.17%|
|RUFFER INVESTMENT COMPANY L...||231.00p||0.00%|
|SCOTTISH MORTGAGE INVESTMEN...||456.45p||-0.16%|
|INDEPENDENT INVESTMENT TRUS...||640.00p||-2.55%|
|All data 15min delayed as of: 17:31:52 17/11/17|
Subscribe to Moneywise
Subscribe for just £1 and receive 3 issues
New subscribers take advantage of this fantastic deal with moneyback guarantee if you decide Moneywise is not for you.