Bigger Fund Companies Are Not Always Better
A bigger fund does not mean that it is better. If you pick a fund just because of its size, you can lose a lot of money because you will always be arriving to the party late.
Unfortunately many investors have loss money over the last few years because they thought that buying from a big fund manager was some kind of protection against losing their money. Fund managers that work for big companies will use that size in their marketing. But just because they use it in their marketing, it does not mean that you should put your hard earned money there. An investor needs to look beyond the brand and look more closely at the actual fund.
Over recent years, the UK market has seen a rise in popularity for boutique investment houses, and, given their track record of consistent positive performance, it’s hardly surprising. There are many ways to classify a boutique, but generally speaking, boutique fund managers are independently-owned or employee-owned, and relatively small in size. They often invest in specialist areas of expertise, rather than attempt to be all things to all men and run funds across each and every sector.
Recently, boutiques have even been stepping on large firms’ toes when it comes to servicing retail clients. Last year boutiques outshone their larger counterparts in the UK, taking the top four places in the ‘best overall fund manager rankings’. Big brands such as UBS and Standard Life slipped down the rankings, while boutiques Rathbone, Neptune, Dalton and Artemis took the top spots.
The last quarter of 2006 was hair-raising for investors, as millions were wiped off share prices and markets. However, the boutique fund management houses continued to outperform their larger rivals.
Most investors and even financial advisers have not heard of boutique investment houses because they are so small. As such, very few investors are taking advantage of some of the great investment opportunities these small investment fund managers provide.
In addition to people investing in a fund because of the company that manages the fund, another huge mistake is to invest in a fund because of the fund manager. Many investors are so ignorant about investing that they look at a fund managers star rankings and invest in a fund based on that alone. How a fund manager did 2 years ago has absolutely nothing to do with how he will perform next year!
Did you know that only 15% of fund managers have run the same fund for 6 years? So why invest in a fund for 10, 15, or 25 years and more based on the guy who is managing the fund when statistics show he will only be there for 6 years?
Becoming familiar with a fund is usually a bad thing. Establishing emotional connections to a fund or fund manager is the biggest reason people lose money in the stock market. The only thing that should matter is the current performance of the fund you are in.
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