Thoughts

Are the Barron’s Rankings Bad for Asset Managers?

Posted by Mike McLaughlin on Feb 22, 2013, in Thoughts , tagged with active management, Barron's, Franklin Templeton, mutual funds, performance, Putnam

Last week Barron’s published their annual fund family rankings. As they typically do, Barron’s focuses first and mostly on one-year results, noting that most of this year’s winners “rose from the very bottom of the 2011 list”.

Did they ever. Only one of the top 10 firms from last year remained in the top 10 this year. Putnam finished first a year after placing 57^th.

Putnam touted their #1 ranking in Barron’s on their Web site.

The Barron’s list gets a lot of attention and the winners tend to use the results as promotional fuel. But as I digested the results, I started to wonder if the Barron’s rankings do more harm than good for fund families.

The volatility of the list is one damaging aspect. Besides the short-term shuffling, this year saw 2011’s 10-year winner drop all the way to 15^th in this year’s 10-year rankings.

I think it’s entirely plausible that these results can lead people to question if it’s possible for managers to have a sustainable advantage. At a time when actively-managed equity products in particular have hemorrhaged money, painting a picture of randomness is far from favorable.

The other problematic aspect of the rankings is the overwhelming emphasis placed on one-year results. Managers almost universally preach long-term thinking – that it is market cycles that matter, not days or weeks or months.

Yet, when given a chance to focus on positive one-year results, many of the firms embrace that opportunity to the fullest. Most of the top 10 have done something to trumpet the Barron’s list, something that I see as counter to a central tenet of their overall marketing and brand.

I’m not saying that firms shouldn’t be proud of good performance. But I think that to a certain degree it should be promoted in the consistent wrapper of long-term thinking and results.

Are Firms Delivering an Inconsistent Message on Alternatives?

Posted by Mike McLaughlin on Jan 17, 2013, in Thoughts , tagged with alternatives, PIMCO

Ignites ran an op-ed (subscription required) from Jon Short at PIMCO about the firm’s promotion of liquid alternative investments. Sometimes in reading a piece like this, I look for the natural contrarian question to ask, and in this case I found it when I reached the following statement:

To be sure, liquid alternative funds are and should remain a portfolio complement rather than a core holding for most investors.

This position has become the stock position of many asset managers. To paraphrase: “Alternatives are great, but you shouldn’t use too much of them (or use them the way an institutional investor does).”

I find this take difficult to reconcile, with the obvious question being: why shouldn’t alternative strategies form the core of an investment portfolio? As it turns out, I’ve already asked a version of this question before. It also turns out that there are pockets of the investment community pushing for alternatives as the foundation of portfolios.

But Mr. Short’s piece makes me further consider the marketing implications of this issue. Consider how Mr. Short continues his thought process by citing that alternative strategies often:

Offer a go-anywhere approach to take advantage of the best investment opportunities
Have low correlation to traditional equity and fixed income strategies
Can be combined to customize a portfolio based on an investor’s goals and risk profile

These seem like the very things many investors are looking for. If alts are the best way to deliver these benefits, I’d expect some firms to be more aggressive in positioning how they should be integrated into some investors’ portfolios.

Of course, there may be data-driven research that confirms a cautious approach in allocating to alts (though I have yet to see firms cite it). And there are two very simple reasons why firms wouldn’t be more aggressive in positioning alts:

Self-Interest: the majority of existing assets are tied up in traditional strategies
Human Nature: gradual change is an easier story for people to accept than one centered on MAJOR upheaval

Even so, I ultimately think the discussion around alternatives and the types of roles they can play in portfolios needs to evolve from its current state. The current uniformity of the messages from most asset managers, and the disconnect between the substantial benefits of alts compared to the low recommended use of them, means there is a good opportunity for firms to have more differentiated, interesting discussions moving forward.

Writing Market Commentary to be Read

Posted by Anu Heda on Jan 16, 2013, in Thoughts , tagged with content management, go-to market

We’re fortunate to be currently leading one-on-one interviews with financial advisors on behalf of a long-standing client. We always enjoy these discussions as a good way to vet the execution of strategic sales and marketing plans.

In a conversation yesterday, an advisor and I talked a lot about content, detailing what makes for good and bad commentary. He’s a savvy advisor, serving his clients for over 15 years and had myriad examples starting with “this is great” and “these guys waste my time with…”.

Reflecting on that conversation, I distilled two ideas to share broadly (others stay privy to our client, sorry).

Add bullets to the top of any commentary longer than 3 paragraphs. I noticed as we walked through positive examples the role bullets play in his decision-making process (whether to read or not).
Make sure the graphics and charts belong. He wanted information and data that told something interesting, not supportive. He thought, numerous times, an author included a chart to prove his opinion. He’s not looking for asset managers to show their work or use backwards-looking data to prove a case.

We find many more asset managers (relative to years’ past) relying on commentary to influence their prospective clients. As they do so, it’s crucial to produce content as client-friendly as possible.

Improve Your Blog (5 of 5)

Posted by Anu Heda on Jan 15, 2013, in Thoughts , tagged with BlackRock, MFS, Russell

Titles sell blog posts. I’m impressed with how blog post titles have been improving in our industry. The most valuable blogs – ones that keep readers coming back frequently – include a good mix of titles.

Oversubscribed advisors, institutional investors and consultants appreciate titles such as:

Improve your blog with titles that (a) are short and (b) provide incentive to read.

The first four installments in this series covered:

Improve Your Blog (4 of 5)

Posted by Anu Heda on Nov 05, 2012, in Thoughts , tagged with blogs

Asset managers continue to blog with more frequency. This week, I counted 73 different posts from asset managers and I surely missed a few. One technique used sparingly but effectively is the question and answer. We think including a few Q&A posts each month improves a blog’s overall quality.

… [read more]