The Larger A Fund Company Is Does Not Necessarily Mean The Better It Is

When it comes to selecting top-performing investment funds and unit trusts the bigger brand is not necessarily better. Choosing the wrong fund by investing with big brand fund managers could cost investors dearly.

Investors are people to. They are susceptible to slick marketing just like everyone else. A big fund will often use their size in their marketing and associate that size with safety even if they don’t directly state this. You need to remember that this is just marketing. You should never invest your money in a fund because you are told that everyone else is doing it. In marketing, this is called the bandwagon effect. You need to look at the actual fund more than anything else.

An interesting movement has started in the UK with the rising popularity of boutique investment houses. These investment houses are very small and they specialize in just a few areas of the economy. They do not try and be all things to all people. They are more focused on their specific niche and do not care about having something to offer across every industry and 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.

The disappointing reality for most private investors is that neither they, nor in some cases their financial advisers, have ever heard of some of these relatively unknown smaller investment houses, and are therefore missing out on great investment opportunities.

The same caution applied to big brands should also be applied to big names – or the so called ’star fund managers’. Is it wise to stake your money on the reputation of an individual big-name fund manager when there’s no guarantee they will stick around?

Research shows that just 15% of managers have run the same fund for over six years, 43% for four to six years, and 39% for two to four years. Similarly, 80% of fund managers at the top 50 UK fund providers have left their funds in the last three years. Around 60% of managers move because of offers from competitors.

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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