I’ve known Nicola Ralston a few years, she’s not someone I’d go into battle with. She’s written a good letter in the FT, which – if you don’t pay to read – you wouldn’t otherwise have seen.
It’s here on this blog, because I’m off to the beach myself today (well taking a train to Italy as my “summer” holiday)!
Our fund manager is not on the beach
Paul Myners goes for a cheap trick in his letter (April 26), pointing out that “well over 50 per cent of diversified equity managers” would do better to go on holiday than to manage their portfolios.
He suggests that it is more insightful to compare investment performance with a manager’s inertia portfolio than with an index or benchmark. But is he doing more than reminding us that, after costs, the average manager underperforms? I am Chairman of Henderson EuroTrust plc; our board is aware of the risks and costs associated with excessive trading and, as a matter of good governance, reviews performance versus both the index and, separately, measures the impact of trading activity.
One of the many merits of an Investment Trust as a vehicle for investors is this monitoring process by an independent board.
The most recent review has shown that over the past seven years the manager added significant value from transactions in the portfolio, net of both fees and dealing costs, as well as outperforming the benchmark index. We are glad that our fund manager does not spend too much time on holiday.
Nicola Ralston,Chairman, Henderson EuroTrust
My three “summer” thoughts.
- As Terry Smith has shown, you can manage a fund very well without over-trading. I am sure that Nicola’s manager knows this too.
- The point of a fund is not to out-perform another fund or an index, it is to skilfully execute the explicit strategy of the fund manager and give people what is “said on the packet”.
- Paul Myners’ point in his letter “Insights of the Inertia Test” is not to throw a cheap shot , but to ask a fundamental question of what we expect from funds.
While it is right to understand under-performance, it is equally right to understand out-performance. If the benchmark is to meet the reasonable expectations of investors, then the capacity of managers to get it “right first time” has to be a major determinant.
More managers should have the confidence to go to the beach for a while, Myners is right. Some managers would be better employed doing something else – maybe in the beachside casinos.
Fortunately, there are enough managers who we can trust to do the job we pay them to, for there to be a proper choice for UK investors, we can thank good consultants like Nicola Ralston for that. I wish her luck with her current venture.