The popular funds management model of having a ‘star’ portfolio manager creates risks for investors and can potentially damage a company’s culture, says Capital Group.
Speaking to InvestorDaily, Capital Group’s Singapore-based investment director Andy Budden said he completely understood the allure of ‘rock star’ portfolio managers.
“The industry loves to follow the concept of the 'rock star' manager, who puts his or her money where their mouth is and just holds 30 stocks,” Mr Budden said.
“I totally understand why the industry loves the high brand manager – it can be really appealing and something that people really want to invest in. But I think there are risks with that.”
Firstly, the abrupt departure of a rock star portfolio manager could leave investors with some genuinely tough decisions to make, Mr Budden said.
However, the impact of a single high-profile portfolio manager on a fund management company’s culture is less obvious, he said.
“If you have a single rock star then you do need the entire organisation to be mobilised around that person and to be prepared to mobilise around that person,” Mr Budden said.
It would be easy to imagine other “really talented” people in the organisation growing resentful, he said.
“You've got to ask what that means for really keeping the depth of talent in an organisation for a long period of time,” Mr Budden said.
The rock star approach is the “reverse” of Capital Group’s approach, he said – given that the fund’s New Perspective fund has seven portfolio managers looking after separate ‘sleeves’ of the US$71 billion global equities fund.
Each of the portfolio managers hold between 24 and 82 stocks, he said. The New Perspectives strategy also has a ‘research portfolio’ with 177 holdings.
“We've got a whole bunch of people who I think could qualify as rock stars but we very deliberately don't call out an individual portfolio manager as the star,” Mr Budden said.