Thursday, July 9, 2015

The Portfolio Managment Approach Matters

When investment experts Peter Lynch and Bill Gross left the funds they managed, the funds seemed to change course.

Unfortunately, at any company or investment, when the bulk of the return is depending primarily on just one person, a lot can go wrong when that person is no longer associated with the entity.

A multiple-manager system can overcome this hurdle when it’s done right. This approach helps combine independence and teamwork, and works better to pursue investment opportunities. A team of managers that share research and resources, but are empowered to act on their own investment decisions, is a method we like to see! It’s like comparing a solid baseball team of 9 players with diverse skills to a team of one superstar player. No matter how great the one superstar is, he can’t cover the whole field as well as a solid team.

Here are some of the advantages of a well-functioning multiple-manager system:

·         Broad Diversification - Each of the fund managers invests in his or her highest conviction ideas. Because of this, the portfolios within the fund are able to contain a highly diverse group of securities.

·         Rigorous Risk Management - Superior long-term performance with less market fluctuations is the result that we’re looking for from the portfolio manager team. This is partially related to the higher level of diversity typically seen with this approach.  

·         Consistency of Objectives - The fund's principal investment group review investments to ensure consistency with fund objectives and overall guidelines.
When all of this is combined, it makes for a fund that is diverse, yet works together like a well-oiled machine.

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