Over the last few years the fund management industry has become increasingly disenchanted with the research churned out by brokers, says Jeremy Lacey in Shares. And quite right too. Last year's scandals blew the lid on the analyst practice of issuing glowing reports on companies they were privately rubbishing in order to protect the cash their firms were making from the very same companies as investment clients. For many fund managers and investors this only confirmed that much of the research they received was at best "chip wrapping".
So today, rather than taking much notice of broker reports, surely investors are better off following a fund manager's lead? After all, they are not trying to sell anyone anything, they're the ones spending and making the money, and they have "already sifted the broker research wheat from the chaff". They also tend to have done a great deal of their own leg work, visiting companies and crunching numbers before making their investment decisions. Many of them now have in-house research teams, too.
So how do you know what they are up to? Via the internet. www.Trustnet.com, www.Morningstar.co.uk and www.Bestinvest.co.uk give free information on top ten holdings of funds. Trustnet also gives you a historical top ten, so you can see what stocks a fund manager has increased or decreased his exposure to. Mark Hall, manager of the BWD Aggressive Growth fund, has added BSkyB, Rotork, Evolution Group and Meggitt to his portfolio in the last six months. But the sites can be out of date, so do also look on the fund managers' own sites.
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If you decide to use this strategy, it is vital to concentrate only on funds where the manager comes up with strong ideas - many standard UK equity funds are little more than index huggers. Funds worth consideration carry a high alpha' - ie, the return is statistically attributable to the manager's investment decisions rather than just to index movements. Bestinvest's website also offers manager record index (MRI) ratings, which estimate the probability that the manager is good rather than just lucky. Many of the funds to look out for will also have concentrated portfolios of 40 or 50 stocks. Good examples of managers to watch include Mark Hall, Ed Burke at Invesco Perpetual UK Aggressive, Tim Steer at New Star UK Aggressive and small-cap specialist Peter Webb at Unicorn Free Spirit. Also note how many managers are interested in any one stock at the same time, says Citywire.co.uk. Take Connaught, the facilities management firm. This well-managed firm has grown profits for every year for the past five years and rose 60% last year as a result. But a number of top-rated fund managers still own the stock, among them Ashton Bradbury of Old Mutual, Patrick Evershed of New Star, Roger Whiteoak of Framlington and Andy Brough of Schroders. Surely that makes it worth a look?
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