In all the years, I have spent tracking mutual funds and asset managers, I have rarely encountered an explicit display of aggression in public domain. Aggression is a trait that one tends to associate with sportsmen or the occasional politician. Conversely, in the world of asset management, being calm and studied is typically the norm. Hence, I was a bit surprised to read a strongly-worded opinion piece, written by the promoter of an asset management company.
In the published piece, the author had insinuated that competing portfolio managers were stupid. His contention was that bogus/hyped earnings estimates were doing the rounds, and in some way, that was linked to the political dispensation. Hence, equity portfolio managers who believed in and acted on the same were stupid. Furthermore, according to him, portfolio managers who didn’t fall for the hype, but failed to communicate their misgivings (on lucrativeness of equities) to investors were dishonest.
Apart from a touch of arrogance, the piece also revealed a poor grasp of how investing works. Investing is a personalised activity i.e. each investor pursues an investment philosophy and strategy that works for him. This principle holds good for portfolio managers as well.
For instance, while some managers pay more attention to top-down factors, others rely on bottom-up analysis. Some invest with a growth-bias, while others have a value-bias. There are managers plying research-oriented strategies and others who deploy a sentiment and momentum-driven approach. Even the investment horizon can vary significantly. Admittedly some strategies are more efficient than others, but that doesn’t take away from the fact that investing isn’t a one-size-fits-all activity, as the article erroneously suggested.
Equity investing isn’t a pure science. When a manager evaluates a business, factors such as his investment philosophy, interpretation and biases (among others) come into play. To suggest that every manager should have read the macroeconomic environment in a uniform manner is oversimplification. More importantly, is it apt to evaluate managers based on one event? Prudence demands that an equity manager be evaluated over the long-haul spanning a market cycle.
An element of bragging rights is perceptible too. Over the last 18 months or so, equity markets have experienced a fair bit of volatility. The flagship equity fund (from the author’s fund company) takes cash calls based on valuations, and has expectedly fared well in a peer-relative sense. The portfolio manager and strategy deserve credit for the showing. However, that doesn’t diminish the credibility of competing managers who don’t take cash calls; expectedly, such funds will fare poorly in falling markets.
On the dishonesty bit, yet again the author displayed his ignorance by mixing up the roles of an adviser and a portfolio manager. The latter is responsible for running the fund to the best of his abilities and in the investor’s interest at all times. However, offering the investor asset allocation-related advice, or managing the investor’s portfolio is not the manager’s role. That’s what advisers are engaged for.
In the competitive asset management industry, the need to celebrate and spread the word about one’s success is understandable. However, branding the competition as stupid and dishonest on untenable grounds reeks of both – arrogance and ignorance.