How to research the manager in charge of your money
But this arguably makes the job of an investment company manager more difficult - and finding a good one just as trying. So which investment company managers are the best? Does it depend on length of service - ie, experience - or can long-serving managers be too jaded to produce stellar returns?
According to the Association of Investment Companies, the investment company sector has a "strong track record of long-serving fund managers", but that doesn't stop many from jumping ship reasonably often. And there has been a number of fund manager changes in the sector in the last year or so.
Nearly half (45%) of AIC members with a 10-year history or longer have had the same fund manager at the helm for at least 10 years. But, since January 2014, some big names have taken the reins at new investment companies.
In July 2015, Paul Niven marked a year at the helm of Foreign & Colonial investment Trust, following a 17-year stint by Jeremy Tigue. In the same month, Wee-Li Hee celebrated her first anniversary managing Scottish Oriental Smaller Companies.
Dale Nicholls is enjoying only his second year in charge of Fidelity China Special Situations, while Mark Barnett (Edinburgh Investment Trust) and Wouter Volckaert (Henderson Global Trust) are also still relatively new in their roles.
In total, around a fifth (18%) of investment companies have appointed a new fund manager over the last year and a half, either as a sole manager or as part of a team, according to the AIC. But some sectors see more volatility at the top than others: in the last 18 months nine new managers have started in the Global investment company sector, while a third of AIC members have had a new fund manager in the Asia Pacific excluding Japan sector.
Ian Sayers, chief executive of the AIC, says: "It is interesting to see so many high profile changes in a relatively short period of time. This is in part a coincidence, with a number of managers having retired after a long period of managing their investment companies. And, of course, some fund managers simply choose to move on to pastures new.
"But it also reflects independent boards addressing long-term performance issues, a feature of the sector that is often underestimated but one which can be of huge benefit to shareholders."
The latter is an important point: corporate governance is high on the agenda at investment companies. As we reported in our March issue, investment company boards of directors have a wide range of responsibilities in overseeing performance, such as scrutinising the fund manager, setting strategy and up-to-date investment policy and (most importantly for investors) a legal obligation to represent and protect shareholders' interest.
Directors meet this final obligation by ensuring that the company is as successful as possible through its monitoring of performance, meeting several times a year to discuss how the company is doing and what it can do to maximise success.
So in some ways, the board of directors does the job of monitoring performance and selecting the best manager for the job, without investors having to worry too much.
This is perhaps why a majority of investment company investors tend to sit and hold their investments rather than chop and change frequently.
That said, many investors do want to conduct plenty of research into the men and women that manage their (potential) investments.
Online, each AIC company profile page gives details of both the board of directors, and the managers. It's also possible to filter investment companies by management group name, to see how managers and management groups have been performing over time. That way you can build up your own view of who is the best in each sector at any time.
But researching the manager should be only one part of your research when looking at investment companies. You'll also need to consider whether you want to invest a lump sum or make regular payments, and how much risk you are prepared to take.
It might also pay to consider how you are going to invest. For example, will you use a tax-efficient wrapper such as an Isa or even a pension?
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.