Choose an Investment Manager
When finding the best investment manager for clients, focusing on consistency and persistency of results is key. Here are steps you can take as a fiduciary to best deliver for your clients.
Establish a strong, documented selection process to identify managers who are in line with the client’s Investment Policy Statement and fill the specific role needed within the asset allocation model. Once you have identified managers who meet your investment criteria, ask three questions to evaluate several key qualitative and quantitative data points.
Evaluate Their Results
Eliminate any manager with below-average investment results over a series of meaningful periods. Strong results over one or two years may not represent enough of a track record. Be sure to review a manager’s results over longer periods of time and a variety of market and economic cycles. Then you can determine who generated the strongest results at a low cost for your client. Expenses should be reasonable based on industry averages.
Resource to use:
The Select Investment Scorecard
Research proves that two simple screens can uncover funds that have beaten the indexes over several periods. Use the Select Investment Scorecard to see how their advantage has grown over time.
Learn About Their Process
Learn about the investment manager’s process and determine what factors drove their results. Are they reliant on one person for investment results or do they employ a committee approach? What is the experience of the manager(s)? Do the managers conduct their own research or do they outsource it? Learning whether managers are invested in their own funds is often another helpful barometer in helping to determine their level of commitment.
Resource to use:
Assists you with your portfolio construction and investment selection by allowing you to download and compare data for the American Funds.
Consider Their Repeatability
Who were the key players who drove the manager’s past results? Are the same people still managing the fund or have they left? You want to ensure to the best of your ability that the investment manager’s track record is strong and repeatable. Also ask how many funds they’re managing. Will they be focused on the fund you’re interested in for your client?
Resource to use:
Compare up to five funds and indices at a time across several categories, including returns, ratings and risk, holdings and fees and expenses.