Finding the perfect match: Fund managers are your financial co-pilot

Find the ideal manager, not the “best” manager

Contrary to popular belief, you should look for a fund manager who aligns with your investment goals rather than chasing the most popular or high-profile one.

For example, imagine signing up for a wellness retreat expecting relaxation through yoga, only to discover that your instructor’s idea of wellness involves steep treks, cycling and rock climbing. The instructor may be highly regarded, but their regimen may not suit your needs.

Similarly, consider the fund manager’s investment style and decision-making. If they take aggressive, outsized bets, it may be overwhelming for a conservative investor with a low-risk tolerance. Conversely, a more aggressive investor may find a conservative manager’s approach unsatisfying. In either case, the likelihood of exiting the fund before it reaches its full potential is high, contributing to the gap between investment returns and investor returns. Even if the fund performs well, you may miss out if the management style doesn’t suit your investing preferences.

Experience with the current fund

In team sports, the captain often gets credit for victories, but success is usually due to a combination of factors: players’ skills, training infrastructure, coaching vision and more. Similarly, a fund manager’s performance depends on the support of analysts, the fund house’s principles, risk management and resources.

When a fund manager switches jobs, relying on their previous performance can be misleading. History shows that even high-performing managers sometimes struggle to replicate success at a new organization. Evaluating the manager’s track record with the current fund is crucial. While past performance across different funds indicates their career trajectory, their specific decisions with the current fund offer insights to guide your investment decisions.

This may be easier said than done, though. One can note that, the way things stand today, most fund managers have a rather limited track record with the funds they manage currently. It may be a tad tricky, but it would help to look at the multiple funds managed by a fund manager across cycles, access communications by the fund manager, and layer the judgement with a high level of subjective discretion.

While there are 1,684 instances of fund managers being associated with a certain fund for less than a year, the count drops drastically after the five-year mark.

Context matters as much as performance

While using historical performance as a primary evaluation metric is tempting, it can be misleading without context. For instance, strong results during a structural market rally may not reflect the manager’s skill. Similarly, a new manager may be credited with the performance of a portfolio they inherited. Context helps distinguish skill from luck, and investors should look for managers with strong fund management abilities. It’s important to understand what factors contributed to the performance and whether they align with your expectations.

Adversity reveals character

A true test of a fund manager’s skill is their ability to navigate crises. While it’s easy to shine in favourable conditions, tough times separate the skilled from the lucky. A fund manager’s role isn’t just to capture upside but also to protect against downside risks. If they demonstrate conviction in their decisions, agile execution, and a commitment to delivering value during challenging periods, it’s a strong indicator of their competence.

Choosing the right fund manager involves looking beyond basic qualifications. Focus on finding someone whose style aligns with your goals, evaluates performance in context, and demonstrates resilience in tough times. The right manager can help steer your investment journey smoothly, even through rough patches.

Nirav Karkera is head of research at Fisdom.