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Top fund managers recognised

Darren Howlin, Chief Judge, FundSource Awards, provides the qualitative research for the FundSource Fund Manager of the Year Awards. He was in New Zealand for the awards and revealed the winners.

Monday, September 11th 2017, 4:37PM

So, Darren, the winner is…?
The winner of Fund Manager of the Year is BT Funds Management. All I can say is that it’s been a very competitive year. It’s been very close.

BT have come out of nowhere and taken this award, haven’t they?
Yeah. I think the interesting thing coming out of the awards process this year is that it hasn’t been dominated by any one specific manager. Most managers that were in the mix as finalists - and up for the big award of Fund Manager of the Year - have all taken out a sector, but there’s been no dominance. This year has been very different, in that respect, from what it was in 2016, when there was a very clear pathway.

The results last year were very clear on who was going to win?

And this year?
We came down to teeth and nails on the difference between each of the funds and each of the fund managers.

Why do you think that is?
The year has been a bit of a tale of two halves, I think. Some managers performed very well. The period that we assess is from 1 July 2016 to 30 June 2017. Over the course of that year, we’ve had some pretty significant events; we’ve had Brexit, we’ve had elections in the U.S., we’ve had surprise results pretty much all round. One of the things that has been a little bit missing out of the market, too, is that there’s been some volatility. I think that’s seeing a lot of compression of returns and therefore, the gaps between managers are very close.

Does the close result say something about the industry?
The New Zealand industry is a very competitive industry. Every manager is obviously trying to do the best they can with the funds that they’re operating and the tools at their disposal. I think it’s reflective of the serious manner in which each of these fund managers in New Zealand take it. Also, there is a little bit of creeping across the ditch now. There are more Australian fund managers that are making their way across. That may be raising the bar a little bit, I don’t know.

Quite a few Australian managers featured in the results, in their first year of eligibility. Is that putting a bit of pressure on the New Zealanders?
It may well do, I don’t know. It is the first year. Next year could be very different. Pleasingly, we have seen some domestic, New Zealand-based managers that have actually outperformed in sectors that you would think Australian managers would do well in. Global property is one of those; we’ve had a domestic manager, Fisher, that has taken that out by a very reasonable degree.
It’s fascinating that Fisher Funds took a global property award.
Again, I think it’s the mix of assets that some of the domestic fund managers can invest in. Obviously, infrastructure is in there and is probably a little bit less volatile than property can be on occasion. That’s probably been one of the key drivers of Fisher doing so well in that regard.
The other finalists for the awards included one of our most active managers, Harbour, and Smartshares, who run a passive strategy. How can that happen?
With Smartshares, it’s very much the mid-cap ETF that’s done extremely well.

That’s the best performing New Zealand equity fund in the market, isn’t it?
Yes, that’s correct. If you can slice and dice the universe correctly, then sometimes, passive investing will work. Active or passive - I don’t think that there is any one particular way that is necessarily better. Active or passive management can work in different market cycles. That’s what has borne out this year.

Can you give us an overview on how performance is reviewed?
On the surface, it can look a little bit like a one-year performance shootout. In some respects, yes, the one-year performance is a key component, particularly for the sector winners. But sitting behind that, obviously FundSource as a group is very much aware that you want to be careful about “one-year wonders”. Therefore, to mitigate that, we look at things like the three-year volatility-adjusted Sharpe Ratio. We’re taking into consideration risk-adjusted performance, plus adding a volatility overlay to that, to make sure that managers aren’t taking too much excess risk or volatility into their portfolios that means that they’re going to potentially generate a stronger result. We also look at things like qualitative components. Every fund manager has to go through a qualitative review. That’s irrespective of whether or not FundSource has actually produced the qualitative research report. It’s mandatory to participate in that.

Do they all do that?
This year, we actually had two managers that didn’t get back in touch with us. I’m not going to disclose who they are! But they didn’t get back to us, and they were actually excluded from the process.

How important are awards and how much weight should people put on them?
As an individual investor, awards can be a good indication of how a fund manager has performed in the last 12 months (in this case). It is a key criterion - as much as we look to mitigate some of the risk out at the back end, it is still about what happens over the 12 months. I believe, and FundSource believes, that awards are useful for highlighting and rewarding the industry, but it shouldn’t be the sole determinant for an investor to make an investment decision on. There are many other factors that need to be incorporated into that.

And it’s probably quite a good sign if there’s previous awards, showing consistent performance?
Absolutely. History can be useful in having a look at how they’ve done, but again, it doesn’t suggest how that manager is going to perform going forward.

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