|
| Personal finance articles |
|
|
|
Trendsetters set for success
By Faith Glasgow
With over 2,000 funds to choose from in the UK alone, picking the right investment can be a daunting challenge. Faced with such a massive range, it's tempting to head straight for the comfort zone offered by well known giants such as Fidelity, Henderson or M&G, or rely on funds sold by your bank. But in the process you risk overlooking the growing number of boutique investment houses. They don't have the big advertising budgets or the massive staff, but they have delivered some great performance.
So, what sets these firms apart from the more traditional, conventional investment houses? The dress-shop analogy works up to a point. A small boutique retailer may not have the same range of styles as Marks & Spencer, but you could pick up an unusual designer label. Similarly, a boutique fund manager is likely to offer just a handful of distinctive and in some cases rather classy investments.
Boutique investment houses are a relatively new phenomenon, with most having been launched within the last decade. One of the first was Artemis, founded by Mark Tyndall from Ivory & Sime in 1997, but others including New Star, Neptune, Bedlam Asset Managers, Resolution, and Midas Capital Partners have since emerged.
Boutique fund managers: what can they do for you?
The trend may have been kick-started by peeved active fund managers in response to the passion for passive index-tracking funds that took hold as world markets rose in the late 1990s. But as we'll see, there are other factors still tempting established managers in big firms to quit their jobs and set up on their own or join a niche enterprise.
But what do you get from a boutique fund manager? There's no hard definition for the term - it certainly doesn't reflect any particular investment philosophy or investment focus. It's partly a matter of structure: boutique firms tend to be set up, owned and run by established fund managers themselves (in contrast to the bigger investment houses, which may be owned by banks or insurance companies or be public companies with shareholders). Importantly, the employees, as well as the founding directors, typically have a financial stake in the company - so there's a powerful incentive for everyone involved to make the enterprise successful.
For example at Neptune, one of the most successful boutiques currently operating, everyone in the company receives share options. In contrast, in many traditional managers the perspectives of other stakeholders, such as holding companies and shareholders, may conflict with and override investors' interests.
Another common feature of boutiques is that the fund managers themselves invest their own cash in the funds they manage. New Star, for instance, although it has grown beyond conventional boutique size, still encourages managers to put their money where their mouths are.
Boutique managers are also pretty unconstrained by benchmarks such as the FTSE All Share. The managers have more freedom and flexibility to follow investment ideas that interest them. In some cases, most notably New Star, there are no house views so managers can run their funds as they choose, within the confines of the mandate. In others, there's a strong team-based approach. Neptune is unusual in that every fund manager also has responsibility for a global industrial sector, such as financials or consumer goods.
Midas Capital Partners, based in Liverpool, takes a different slant again. It runs a couple of multi-asset funds, each of which holds around 130 or 140 holdings. But rather than the investment team of six having to source ideas for the whole spectrum of investments and regions, they concentrate on UK bonds and equities and use specialist external managers for other parts of the portfolio.
Reliability
Crucially, an unconstrained approach doesn't mean a slack investment process. At Bedlam Asset Managers, for instance, the aim is to make steady returns with low volatility and low stock turnover - nothing flashy, but very reliable. The six-person team uses a single rigorous screening process - but it's not inhibited by lots of bureaucracy.
Performance is the key attraction and there is a group of boutique funds at the top of several major sectors. An industry website tracking fund performance has identified Neptune's Greater Russia fund and China fund as the two funds with the highest ratings across the entire 2,000-strong fund universe.
There's also a regular report looking at each company's top-performing funds as a percentage of its total fund performance (only firms with at least 10 funds are included). The latest report shows that the top of the table for 2006 was dominated by boutique firms, with Rathbone in second place to a slimmed-down First State and followed by St James's Place, Neptune and Artemis. A similar pattern was evident for 2005. It suggests that companies do better overall if they do not try to be all things to all investors but instead limit their horizons.
In contrast, fund giant Fidelity tumbled 32 places down the table. It now ranks 41 out of 54 firms monitored (with only 19 'strong' funds out of a total of 52), although it's still above a cluster of high-street banks including HSBC, Abbey, Halifax and NatWest.
Be warned
Some of the biggest companies have outstanding individual managers who effectively operate as a kind of one-man boutique within the enterprise.
There are other considerations if you're thinking of investing in a boutique firm. Be aware of the greater risk involved in investing on the basis of 'good ideas' rather than following the lead of an index.
There's also more risk in putting money into a relatively small business than into a big firm - especially where it's heavily reliant on key individuals.
For instance, says Warren Perry of IFA Churchill Investments, if Rathbone lost its star Income and Special Situations funds manager, Carl Stick, it could struggle to replace him. But against this argument is the fact that because boutique fund managers (theoretically) enjoy their work environment, they're less likely to be lured away to a rival firm.
Another plus for investors is the growing trend for boutique managers to cap funds - restricting entry for new investors - after they reach a certain size. JO Hambro introduced the idea, and other firms including Majedie Asset Management and Neptune have followed suit. The notion of fund-capping raises a key question: how far is the label 'boutique' to do with size? New Star manages around £7 billion across 37 funds; Artemis, meanwhile, runs four funds each valued at more than £1 billion. Both firms are much larger than their boutique peers, but still emphasise managers' autonomy and financial involvement.
While boutique fund houses undoubtedly offer some great opportunities, the same old warnings apply: look at the fund as part of your overall portfolio, don't be seduced by last year's top performers without a closer look at long-term performance and consistency - and don't forget to monitor your funds.
Useful links:
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View