Are you looking in the right places when assessing a fund manager?

Many investors today focus the bulk of their attention on gathering information and data when it comes to manager assessment. From reading through documentation (DDQs, supplement, financial statements, presentations etc) to the analysis of performance series, investors certainly have their work cut out. But is this approach solid, or is it just scratching the surface?

I would argue that the analysis of historical information and data is merely the foundation on top of which the assessment is built, not the assessment itself. It shows you what was produced, but not necessarily how, nor why.

It is akin to seeing a wonderful dish on your favourite chef’s Instagram feed, without actually seeing the recipe, thought process and iterations.

In some cases, when revealed the recipe and thought the process might be enough to put you off what looks like a fantastic dish. In some cases, the dish was arrived at by pure luck, void of any thought process or recipe.

To assess what the fund manager has produced, we must be prepared to dive into the ‘how’ and ‘why’. Otherwise, we may be fooled into eating a beautiful looking dish that leaves you with a sour after-taste.

To tap into the ‘how’ and ‘why’ behind the performance, we need to break through into the manager’s knowledge, understanding and wisdom.

One way of doing this is through asking the ‘right’ kind of questions (another post on this soon). Not just the obvious, superficial and box ticking ones. But, the thorough and in-depth questions that say something about a manager’s ability to apply their knowledge and experience.

Sounds tough.

Is there another way of getting a better understanding of a manager’s investment behaviour, and thinking?

Yes. By looking through their exposure data.

How the exposures have changed over time will reflect the shift in reasoning behind a manager’s investment actions. As such, this provides us with powerful data points on which to evaluate a manager’s ‘how’ and ‘why’, and build a constructive dialogue around the ‘right’ kind of questions.

The good news is that we’ve adapted FundPortal to accommodate exposure data, and have (in true Edgefolio style) made it interactive and fun. Above is a gif of one of the dozens of exposure charts that come pre-baked into the portal.

Another small step on the journey to bridge the data gap between fund managers and investors.


You can head over here to read more about FundPortal, the document portal solution from EdgeFolio. If you would like to find out more or request a tour of the tool, feel free to contact us.

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