Soapbox: A funny old game
In one of its final editions of last year the Financial Times described 2008 as a ‘great challenge’ for New Star Asset Management and its chairman John Duffield.
If you hadn’t read the article in the FT’s pink pages you might have been forgiven for thinking it suited the sports pages of a tabloid newspaper. After a recent research note from UBS about the outlook for New Star, the FT felt vindicated to have another go at the story, as did other publications.
The ‘great challenge’ facing Mr Duffield amounts to the fact the group’s share price is not as high as it once was — apparently it has halved from its peak. It’s the same challenge that Kevin Keegan faces to turn Newcastle into a top team or for Rafa Benitez and Liverpool to win the Premiership.
The last time I saw Mr Duffield he showed nothing like the stress of Keegan and Benitez, which could have been forgiven considering the redemptions on property funds and indifferent performance on others.
Thankfully Mr Duffield is not behaving like a Premiership manager but it seems the investment industry is treating fund performance in the same way we do football. Fund management might be a funny old game, but reducing it to pure punditry does no one any good — investors, financial advisers and even the fund managers themselves.
It’s like the useless statistic that said Fulham was the team that has thrown away the most points in the second half of matches. If it hadn’t, it would be in the top eight by now, rather than near the bottom. This is no consolation if you’re a Fulham supporter. If Fulham was a fund, no doubt Mohammed Al Fayed would use these statistics to prove to his unit holders how well the Fulham fund had done, over a 45-minute time period.
The investment industry creates more benchmarks, more time periods and more ways of rating funds every year but who does it serve? Quite frankly it doesn’t help the most important person in the chain — the end investor — whose goal should be simply to generate a better return from a fund, after charges, than they can get from cash, such as a 30-day bank deposit account.
The discussion doesn’t need to be any more complicated than that. We’ve all met the punter who claims to have invested in the North Korean Smaller Companies fund that is up 697% in the last 12 months, just as we’ve all met the bloke who has the first four in the Grand National every year. It’s that time of the year when the investment pundits are invited out to make their annual predictions.
Some fund managers are still brave enough to put their necks on the line and guess where the FTSE might finish 2008 or even have a go at what the price of gold or oil might be.
I say guess, because it clearly is a guess. You can only make so much informed speculation about topics like this. We all know the factors that affect these figures but in what combination these factors work is anyone’s guess, and invariably a couple of new ones crop up each year. Did anyone really predict last year’s credit crunch? A few people hinted at it but no-one was bold enough, or even stupid enough, to call it to the extent it turned out, and arguably we are going to be talking about it for at least the rest of this year.
What is clear from last year is that the simple out-performance of the UK mid-cap sector over the FTSE large caps ended. 2007 was the first year since 2002 that this was the case. It’s foolhardy to say any more than this — maybe that prediction in itself is foolhardy.
Fund management is a simple game, let’s keep it that way and educate investors to look for a return better than cash after charges over a number of years. Anything more is a bonus, anything less is called risk. But that’s a whole new set of stats.
Lawrence Gosling is the founding editor of Investment Week. These opinions are his own and do not necessarily reflect the opinions of The Actuary.
Lawrence Gosling is the founding editor of Investment Week
