Selecting the right investment manager to handle your money could make a big difference on your returns
Who to invest your hard-earned cash with isn’t a decision to be taken lightly. Thandi Ngwane, head of Strategic Markets at Allan Gray, offers some guidelines that will help you choose the right investment management partner.
Understand the investment philosophy
Every investment manager has their own investment philosophy, a stated way that they invest. Make sure you understand that investment philosophy, and that it resonates with you.
The most important thing here is that your manager sticks to their investment philosophy; changing tack to chase big returns, or trying to time the market, is often fraught with potential pitfalls. Having the right people with the right experience is crucial for the manager to be able to apply their philosophy and processes. Ultimately, these factors all determine your success in the form of long-term performance.
Establish whether your manager is a more ‘passive’ or ‘active’ investor. Passive managers do not make active choices about what to include in their clients’ portfolios. They buy a small amount of all the shares in the relevant stock-market index (the shares representing the overall market), normally in proportion to the market price of the company represented by that share. For passive managers, the current price of each share is the best indicator of its long-term value.
Active managers, on the other hand, actively pick the investments they want in their portfolio based on their assessment
of the opportunities available. They can do better or worse than the market depending on which investments they choose to buy for their clients.
Look for a long-term track record
Investors tend to focus primarily on recent performance. Of course, past performance is exactly that – in the past; there’s simply no guarantee that it will be replicated over the long term. You can, however, get a holistic view by looking at performance over time.
Set realistic expectations
While you have to hold your investment manager accountable, you should also have realistic expectations. If you understand the manager’s philosophy, then you should also understand their investment choices and short-term swings in performance.
In the long term, more often than not, it is managers with better skills who come out on top.
If managers are skilled enough in the long run to get more than half of these decisions right, and if they also put a bit more money in the winners than in the losers in their portfolios, they grow the savings of their clients by more than had they invested in the index.
It is important to leave your emotions at the door and remain focused on your objectives. Try to be confident in all your decisions. This will make it easier to stick with your choice during any periods of underperformance so that you can ride them out and enjoy the returns when they come.