Angelique Ruzicka interviews Brian du Plessis from Rezco Asset Management about whether awards are the only thing that investors should consider when investing in a fund. Du Plessis warns that awards aren’t the only thing that investors should look at and offers advice about how to pick a fund that’s right for you.
Should investors consider the awards a fund has won when picking a fund to invest in?
“It’s an important thing to look at. But one thing you have to look at is: did that fund manager win on outright performance or risk adjusted returns? What we are trying to do is produce risk adjusted returns and this is what potential investors should look at. You should also look at the long term track record of the fund and portfolio manager. If you look at the long term track record and if they’ve won awards over that time then you know that they have a superior process, which they follow and which is getting superior returns or risk adjusted returns. I would rather invest in a fund that has a long term track record than one that has won a couple of awards.”
What should investors be looking at when they look at track record?
“Look the fund’s track record over at least three to five or, better yet, ten years. But one way to look at whether they’ve been looking well over the long term is how they have performed over various market cycles. How did they perform in a bear market (when the stockmarket is going down) and how did they perform in a bull market (when the stockmarket goes up).
Ideally in a bear market you don’t want to participate too much in that and want to preserve your client’s capital. But in a bull market you want to participate in that run and create wealth for that client. A good way to separate the good from the not so good is to look how they have done over different time periods or market cycles.”
How can investors find out about the various cycles of financial markets?
“The best way is obviously to research on the internet. Get a graph of the S&P 500 or the Johannesburg Stock Exchange’s performance and you can have a look at when it’s gone up and gone down. You just have to do your research when you are investing – it’s super important. It’s easy to read up on a company, an asset manager and to read up on the fund fact sheets.
“Look at the latest commentary from the portfolio manager. Find out what their investment philosophy is. Their past performance is not a guarantee to their future performance but if you can gauge what their philosophy is you can get an idea what they will do in the future should there be another market correction like there was in 2008.”
Should you find out if the manger/directors invest in their own funds?
“It is a good question to ask. When a team or manager invests in their own funds that means their interests are aligned with those of the client. So they won’t do anything irrational that will expose the money of the fund to more risk as that will hurt their pocket as well.”
Should investors take it one step further and ask what percentage of a fund manager’s savings is invested in the fund?
“It wouldn’t be easy to get that information but it is a good question to ask. An even better question to ask is to find out about performance, i.e. what is the benchmark that a fund manager has to achieve. If it’s a really easy target like cash plus 2% then that would result in the fund getting a lot of fees.”
What else should investors look at when it comes to choosing a fund?
“If you are looking at an active management company which charges a management performance fee a very important thing to ask is: ‘How does that company justify that management fee?’ The asset manager needs to do two things to justify that fee: active asset allocation and active stock picking.
“In terms of award winning funds I wouldn’t just go for a fund that has won an award. I would say it’s a positive thing but should just be a first step into your research to delve into whether the fund is a good one to invest in. Find out the fees and whether the team has been together a long time and what their philosophy is.
“Investors definitely need to look deeper. Even if they [the fund manager or management company] have won an award, there are so many awards out there for so many different categories. There’s different methodologies used to give these awards but you really need to do your homework and do your research.”