Star v teams: who is managing your money? What Investment looks at the different approaches to fund management

What Investment, March, 2003

The company then looks at risk. Willis explains: "When creating a UK portfolio most fund managers look to pick stocks from the whole market. But just how big are their teams of analysts? Most are not large enough to analyse and monitor the whole of the market. Using our portfolio construction tool, we are able to re-evaluate every stock on a daily basis mid buy mid sell on that basis."

Finally, BGI looks at cost. "Managers sometimes see Otis as incidental," says Willis. "But for every buy mad sell made in a fund, costs are incurred. We prefer to focus on net returns." To limit costs, BGI engages in a process known as 'crossing'. As a large international fund manager with a diverse client base, it is often the case that one client is looking to sell shares that another is trying to buy. BGI 'crosses' these trades, avoiding a significant proportion of trading costs.

"Our product was set up because we are sceptical of the long-term success of the traditional fund management model," says Willis. "We are looking to compound lots of smaller returns to produce 2 per cent out-performance. We are not trying to shoot the lights out with a small number of holdings."

Most team-based management processes are, however, much more flexible than the BGI example. "At Fidelity we have always advocated a team approach," says Julia Edwards, senior fund analyst at Fidelity. "We haven't cultivated the concept of the 'star' manager, though the system of recruitment that we employ does bring out some top managers."

As 'bottom-up stockpickers', company-level research is at the core of the Fidelity investment process. This is why Fidelity places a particular emphasis oil resources. Its global network of over 420 portfolio managers and analysts is one of the largest in the industry.

Unlike most other investment houses, Fidelity trains its fund managers from scratch. Analysts are recruited from the best universities and business schools. It is only after a typical four-year spell in this role that the most talented progress to managing portfolios. Nurturing talent in this way creates teamwork and loyalty and is one reason wily Fidelity's fired managers have been in place, on average, for 14 years.

"This process has several advantages," says Edwards. "It makes managers objective and gives them a wide range of knowledge across a variety of sectors. It helps them establish the stock-picking skills that our managers are noted for. All the analysts are directly responsible for the decisions they make and the ratings they give. It is tip to the individual fund managers to act on Oils research."

Most managers at Fidelity are allowed a great deal of freedom despite the emphasis on team research says Edwards. "The best fund manager is a happy fund manager. And the happiest fund managers are those that are allowed to manage funds in their own style. As a house, we do not have a growth or value bias--each manager runs their money in their own way."

One of the beauties of the Fidelity 'grow your own talent' approach is that it provides the company with a constant pool of talent that ensures the company is protected from sudden fund manager moves. The last time Fidelity UK recruited from outside of this talent pool was in 1979 when Anthony Bolton joined the team.