When Two Heads Could Be Better Than One

When we talk about fund managers, we usually talk about the stars of today or the rising stars of the future: the individuals that are making decent returns for their investors.

We tend to talk less about the duos or teams running money – the co-managers. But are two heads better than one? As with every debate there are pros and cons:

The advantages of co-managers

1. Stability and continuity

If one co-manager leaves, is sick or goes on holiday, there is stability for the fund. When it is a star manager the first two scenarios in particular could be a problem for the company, at least temporarily.

2. Extra resource

Covering whole stock markets and constantly finding new ideas can be very difficult if you are on your own, especially if you don’t have a team of analysts to help. Even niche sectors have plenty of companies to choose from. Co-managers mean there is more resource and more analytical power to find hidden gems.

3. Challenge and conviction

If the co-managers are peers and trust and respect each other, they can bring different skills to the team adding challenge and conviction. What you don’t want is for them to agree all the time or end up compromising on ideas. As Kenneth Kaye once said: “Two heads are better than one only if they have different opinions.”

Co-managers who have found the right mix

There are a number of co-managers or teams that have found the right mix and worked together well for many years. Here are three with Elite Rated funds:

1. F&C’s Gary Potter and Rob Burdett

Gary and Rob have worked together on F&C’s Multi-Manager range since 1996. They said the key to the process is their team which has stayed together through three different businesses, with some of them having never worked with anyone else. “The average tenure is longer than the average marriage,” they joked.

When it comes to running a successful partnership, Gary said: “First of all make sure you have a common investment philosophy about what works and what doesn’t and what the products are designed to achieve. It is often helpful if you don’t have the same strengths and weaknesses so there is always a good complement. You have to trust each other and the team you work with. A competitive nature with a common goal helps.

“Any differences of opinion, if they occur, are more to do with timing than substance. Chatting through things together is always helpful and being prepared to accept that you, not the other person might be wrong. The most important thing is to find a way of resolving differing opinions. Prima Donnas don’t usually do very well over time. It’s all about the result and outcome, not the individual.”

2. Jupiter’s Merlin team

The success of Jupiter’s Merlin range of multi-manager funds, which includes Elite Rated Jupiter Merlin Growth, Jupiter Merlin Income and Jupiter Merlin Balanced, comes down to the strength and stability of the team running it. Their process is simple: they assess the macroeconomic environment, identify the best people, construct the portfolio, then monitor and modify.

Co-manager Algy Smith-Maxwell said the key to a successful partnership is to thoroughly enjoy each other’s company.

“John [Chatfeild-Smith] and I have never had a cross word in all the time that we have worked together,” he told us. “There have been some pretty intense periods over the last 20 years that have tested our metal, but our working relationship has never wavered. We have of course developed a deep trust and respect for each other and we leverage off each other’s strengths, but we also make each other laugh! It pays to be different but it is crucial to have exactly the same investment philosophy. Good communication has been key. It is not just what you say but when you say it that matters.

“John has always trusted my judgement of people and I have always trusted John’s judgement of when to be brave and when to be fearful – two very different skill sets that are essential when combining a global macro-economic overlay with individual fund manager selections and portfolio weightings.”

In 2011, Amanda Sillars and David Lewis joined the team alongside John and Algy. Since then, Algy said their investors have benefited significantly. “We have been able to extend our breadth and depth of research, make better investment decisions and enhance our level of communication externally,” he added. “In addition, Alastair Irvine joined us in 2015. He is one step removed from fund management in his role of product specialist but is a tremendous word-smith and has an uncanny ability to ask us difficult questions at the right time.”

3. Premier’s Multi-Asset team

The co-managers, who head up the Premier Multi-Asset range, which includes Elite Rated Premier Multi-Asset Monthly Income and Premier Multi-Asset Growth & Income said the key to a successful partnership is to blend different skill sets and to share the same investment philosophy.

David Hambidge, who heads the team, said: “In such a diverse area as multi-asset, multi-manager investing, it is unlikely that a single manager approach would work. Every member of our team plays an important role in looking after the assets we manage on behalf of our investors.

“Of course, we disagree sometimes. However, each of our funds has a very clear objective and intended risk profile, plus clear investment parameters, which include parameters designed to ensure each portfolio remains well diversified. This provides a useful framework for decision-making. We encourage discussion about different investment opinions but in the end, our job as a team is to make investment decisions. Typically, we come to a decision together, but if required, I have ultimately responsibility for portfolio positioning.”

The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.