Fund Strategy: A retrospective

There have been circa 850 issues of Fund Strategy since the first magazine was published in October 2000, during which time the title has seen six editors and four redesigns. It has also reported on and analysed the vast majority of events and themes that have shaped the financial services industry in the 16 years since.

In addition to the technology, media and telecoms (TMT) bust in 2000, a split-cap investment crisis a year after and a global financial crisis in 2008, there have been a host of regulatory and political changes that have changed the way investors buy and sell funds.

Here we not only look back at how things have changed since Fund Strategy first hit desks all those years ago, but look forward to how the industry may be progessing. We also invited several of the magazine’s past editors to share their views on the key events which took place during their respective tenures. To show how far things have moved on since October 2000 – which incidentally was the month England last played a competitive match at the old Wembley (lost 1-0 to Germany of course) – Square Mile’s head of investments Jason Broomer notes back then upfront fees were often offered to advisers when buying a fund.

“That is now very much yesterday’s story,” says Broomer. “Hopefully today there are fewer people buying funds based on performance and peer group rankings. All those years ago many advisers processes were based on momentum, rather than fundamental analysis.”

Another huge shift, which has accelerated since the onset of the Retail Distribution Review in 2013, is the move to outsourcing. Broomer notes nearly two decades ago advisers were more general practitioners and heavily involved in their own investment management strategies for clients. “Advisers have evolved to the point where they realise they need expert investment specialists to help pick funds for clients and part of this has been a greater move to both multi asset and passive strategies,” he says.

As a sector of the market, multi-asset has developed hugely. Once simply known as the Managed funds sector, the IA (or the IMA as it was back then) split this sector into Active Managed, Balanced Managed, Cautious Managed back in April 1999. Rebranded again in January 2012 to the current IA Mixed Investment 0-35% Shares, 20-60% Shares, 40-85% Shares and Flexible sectors, at the end of February these sectors housed a collective £123.8bn of assets.

“With multi asset and outcome-based funds we have seen a shift away from a fixation on simply beating benchmarks, to instead a focus on what clients are trying to achieve,” says Broomer. “I think this may well gain greater focus going forward, with the old adage of just buying a FTSE All-Share tracker as a low-risk solution being left long behind. Ultimately investors want to achieve the outcome they are saving for; whether this is saving for a house, grandchildren or retirement, and with this in mind I forecast more outcome-based funds aimed at generating sensible returns in keeping with these objectives gaining in popularity.”

Turning to passives, the active versus passive argument has long rumbled on. My argument has always been that there is room for both, but the passive industry has been through some huge changes in recent years.

“When it comes to passives a big change versus 20-odd years ago is how much cheaper they have become,” says Broomer. “Back then 100 basis points was a pretty standard charge (and still is in the Virgin tracker), which was a bit cheaper than active but not by a significant amount. Today the fees in passives can be measured in basis points, which helps support the move over to them.”

Indeed, the fees active funds charge has been a hot battleground, with many opponents criticising fund management groups for taking high fees when not necessarily deserving them.

“There is a danger that people have become overly focused on fees,” says Broomer. “If a fund manager has genuine ability to generate alpha this is a very valuable skill. The trouble is that identifying manager’s sustained alpha generation is a tricky exercise.”

Setting the clock back to 2000, Broomer says he had funds in his portfolio run by Fidelity’s Anthony Bolton (UK Special Situations), ABN Amro’s Nigel Thomas (before he and George Luckraft moved to Axa Farmington) and Richard Buxton at Barings, before his high profile move to Schroders.

“Buxton was having a couple of tough years at Barings at the time, and all of the managers I mentioned went through difficult periods at one time or another, but each were, and still are, exceptional in what they did,” he says.

While there have been a number of crises over the past 16 years, equities in general have done well, and Broomer quotes the old maxim that the “stockmarket can go up on an escalator and down in a lift”. The point being that more years have been spent in bull markets than bear ones, and while at times it may have felt the world was coming to an end, ultimately investors buy valuations and the world does not end.

In addition to the ever-popular UK equity income sector the hunt for income has taken investors to many other parts of the globe, with the launch of several European, US, Asian and even emerging markets equity income funds. Investors have also turned to commercial property and other asset classes in their hunt for dividends.

“I have young analysts in the office who have never earned a penny from cash deposits,” says Broomer. “The massive decline in interest rates has been profound and had implications on everyone. While rates could soon rise, how quickly they do so will be very important. If it happens very quickly financial markets will belly ache very loudly, but if they climb gradually it could be quite a healthy normalisation.”

In terms of evolution, the onset of robo-advice is ubiquitous, while Seneca’s chief investment officer Peter Elston hit the headlines recently when he posed the question; is a computer going to steal my job as fund manager?

Elston pointed to three famous examples in modern history when a computer beat the world’s best player at three known games; chess in 1996, the Chinese board game Go in October 2015 and poker in January this year. His natural question to follow was how long will it be before computers are beating the world’s best fund managers?

Broomer points out that algorithm trading and quantitative strategies have been around for a numbers of years. For him, they work until they do not work.

“The stockmarket is a very adaptive process and a problem with any quant approach is that by design they are not very adaptive,” he says. “Stockmakets are continually reinventing themselves, but the institutional memory in financial markets is quite short.

The problem is that this does not stop the same mistakes being repeated on a regular basis. For example the banking crisis of 2008 was oddly reminiscent of the banking crisis in the US of the 1930s, and for Broomer booms and busts will continue to take place on a regular basis.

Another area of constant development is the regulatory environment. Having previously been regulated through Self-Regulatory Organisations (SROs), Evershed’s managing director Simon Collins recalls it was back in 2001 when the FSA (Financial Services Authority) was created, which sought to provide more regulatory oversight to the funds industry.

“The wealth management industry has rolled with the volatile economic waves,” he says. “The impact of Ucits III, RDR and now Mifid II have certainly shaped the industry.”

Going forward, he says greater transparency on what is clear and transparent to customers will be key. He argues the FCA’s asset management market study will drive the debate around value for money, while to focus attention the extended Senior Managers and Certification Regime (SMCR) kicks in next year.

“The SMCR will provide the industry with the ultimate opportunity to recover the trust from the public that actually the UK offers the most transparent environment with a culture built on what is best for the end customer,” he says.

“Senior management will be signing up to a statement of responsibility that makes it clear what they will do and what areas of the firm they are responsible for. In addition they will be putting their hands up to say ‘if it goes wrong on my watch then I am responsible’.”

In terms of Fund Strategy’s evolution, the magazine has gone from a weekly format, to monthly, to now online only. However it will continue to analyse the key themes and issues affecting investors. Welcome to the digital age.

The editor views
Roger Anderson, founder editor of Fund Strategy

Fund Strategy was launched to give the industry top-end fund management analysis that wasn’t being provided by other media at the time. The fund management industry welcomed this because we provided in-depth articles on topical issues. On one occasion I had just about finished writing a 5,000 word article on the outlook for oil, when my computer crashed and I lost every word that I had spent that day writing. So I had to work in the office through to 4am and then kipped on the office floor!

“I also remember having two cover stories ready for the winner of the 2000 Bush v Gore presidential election: one to run if Bush won and the other if Gore won – cover artwork and everything. When it became clear no winner was going to be formally announced, we had a bit of a problem.”

Stephen Sheppard, editor from 2001 to 2004:

“My most vivid memory of Fund Strategy was covering 9/11. It happened on a Tuesday afternoon when most of the content for the week was already finalised. Like everyone else, we were transfixed by the TV screens.

“When we came in the next day we cleared as many pages as we could, including the cover story, to focus on that dreadful event. I was very proud of the team – we provided more answers for the readers than any of our rivals that week.”

Daniel Ben-Ami, editor from 2004 to 2011:

“For me the global financial crisis was the highpoint of my time as the editor of Fund Strategy. That might sound like a strange thing to say but there were important stories breaking all the time. I also think we anticipated events better than most publications.

“Undoubtedly both the worst and best week was the one including the suicide terrorist bombings in London on 7 July, 2005 – what became known as 7/7. I, like most of the team, had to walk several miles to get into our central London offices on that terrible Thursday morning. Despite the massive disruption we were determined to send the issue to press the following day and we did.”

Adam Lewis, editor from 2011 to 2015

“One of the key themes I tried to convey during my tenure as editor was the importance of investing for the long term. Given all that has happened in the last 17 years, it is not surprising that at times investors may have become nervous and looked to sell certain investments. With this in mind, the attached tables show what have been the best performing IA sectors since the magazine’s launch in October 2000, to 23 May, 2017.

“Edited highlights show how you would have been rewarded by sticking with Asia and emerging markets, seen a huge gain from UK Index Linked Gilts, and a very disappointing return from the Technology sector”

Laura Suter, editor from 2015 to 2016

“The day the Brexit result was announced was by far the busiest and most memorable day of my time at Fund Strategy. Starting at 4am waking up to the early results and ending at 6pm with a pint in the pub, the day was non-stop, but the team were amazing at reacting to the news and trying to decipher what it meant, as well as tracking the market selloff. Amid all the surprise and panic on that day I think we delivered the best content to help our readers navigate the shock news.”

The Collinson files
Regular columnist Patrick Collinson reflects on his most memorable profiles:

Fund management attracts the smartest minds in financial services, which has made my job of interviewing around 500 of the best and brightest over the past 17 years challenging but never dull. Who has left the strongest impression?

Probably the most intellectually rigorous have been Anthony Bolton (Fidelity), Nick Train (Lindsell Train) and Terry Smith (Fundsmith).

A lucky few are really bright yet entertaining at the same time; were Edward Bonham Carter not trousering millions at Jupiter he’d probably be making a decent living as a stand-up comedian.

The could-be-a-mate-down-the-pub prize for being totally human (but actually not like you because they are super brainy and earn big spondoolies) goes to Bill Mott (ex Credit Suisse/Psigma). Theodora Zemek (M&G/New Star) was equally charming and joyous to interview.

Some interviews are awkward, one with Andy Brough at Schroders memorably so. After a terse and brittle conversation, I chose to reflect his attitude in my write-up for Fund Strategy. He rang the day of publication to thank me for being honest and not sucking up to him.

Some managers you meet and think, wow, they are going to go a long way. I felt that after first interviewing Katherine Garret Cox, then at Hill Samuel, and Robin Geffen, then at Orbitex. Which brings me to the manager I most admired early on, and I apologise for the cliché. It was Neil Woodford at Invesco Perpetual.

I’ve been interviewing him for nearly two decades now, including a day shadowing him and (equally impressive) Ed Burke when they worked together in Henley. My biggest regret? I never invested a penny in any of his funds. More fool me.”