Much time is spent seeking out and pondering who exactly are the best investment fund managers. But two things are apparent -
- Like in any industry there are very few stars but many pretenders, and
- Investing with the world's best fund manager in the world's worst performing sector will do nobody any good. Remember that fund managers operate under a mandate of investment and therefore are pretty much fully invested all the time, including in a falling market.
Contrast this with a monkey picking 10 stocks at random in a hot market or sector. There is no question that the results would be excellent. Moral of the story, concentrate far more on picking the right sectors than worrying too much about who's actually picking the stocks, or setting the investment strategies.
What Are The Main Investment Sectors
Traditionally there are 4 main investment sectors -
- Equities
- Property
- Bonds, and
- Cash
Having the right mix of these at the right time will in 90% of the case be the key to any invest portfolios success.
And recent research proves this without a doubt.
- In a excellent research report done by AC Financial Ltd (a London based IFA) they came up with these conclusions
- 25 years worth of unit trust date was analysed looking at both the best and worst performing funds in each sector
- The worst managers in the best sectors dramatically outperformed the best managers in the worst sectors
- In fact the margin was so great it proved once and for all that sector selection is far more important than either the fund manager or stock picking
- To sum up, it doesn't matter who you are, it's almost impossible to make money in a bear market whatever your previous track record
- And remember the old saying in the markets 'you're only as good as you last investment'
So Which Sectors To Invest In
There are actually 28 main investment sectors (basically subsections of the 4 dominant ones listed above). These 28 sectors are classified by the Investment Management Association (IMA) and there are 'all IMA' unit trusts and OEICS (Open Ended Investment Companies) available to invest in. If you had simply invested in one of these funds encompassing the whole sector spectrum over the past 25 years your annual compounded return would have been an excellent 13%.
Therefore not thinking too much and investing in all the sectors looks like a very prudent way of tackling the inherent problems of deciding where to invest for the long term.
Summary
So called 'star' fund managers are generally nothing more than people being in the right place at the right time. Just as much as a 'useless' fund manager is in the wrong place at the wrong time. It therefore is a waste of time, as the AC Financial study proves, to be looking for the right 'man' to invest with.
Instead concentrate on having the right balance of sectors and you won't go that far wrong over the long run.
PS. We wrote this article yesterday and having slept on it are starting to think that the research done by the fellas a AC Financial is one of the most important works on investment we've seen for a long time.
Don't discount it because for those investors with a long term view, 5-10 years+ (SIPP holders etc) it may lead to superior returns, returns which for most, even the professionals are not easy to obtain.
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