The best investment fund managers to back now

Rather than hit you with yet more crystal-ball gazing to add to all the other forecasts doing the rounds, I want to talk about how we can cope with financial markets that are essentially unknowable.

While I'm bullish on the year ahead overall particularly on emerging markets and growth opportunities I also think it'll be a volatile ride with quite a few nasty upsets. What really interests me is how to cope with this intrinsic uncertainty.

Diversification is, of course, important. You need to own investments that can capture different market trends. Within that, I also like the idea of backing veteran managers who've been through endless market ups and downs, and so can provide the best outcome if a market does move in their direction.

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But I need to temper this interest in market-leading veteran managers with a big warning. That's because, as dozens of research papers show, most active fund managers aren't worth the extra money you pay them.

In most cases a low-cost, passively run exchange-traded fund (ETF) is a better bet. That said, some very experienced managers can produce superior results over the long term. And that's what many of us are looking for.

Most people can't be bothered to do the ongoing research needed to spot the asset classes that have the best potential at any given point, then invest in them via an ETF. Nor do they want to keep jumping ship to the latest hot fund manager, only to have to switch after a few years as trends change. What most of us would love to find is a manager with experience, whom we can hand our money to, then walk off and forget about it.

So we want to find long-term managers who can add value persistently'. In other words, while they might have some fallow periods, they are able to keep getting it right over the very long run.

To me, years of experience in the markets, a consistent strategy built around a strong team, and a sensible approach to managing the trade off between risk and return, are the key ingredients to this sort of success.

I've loosely applied this thinking to my own portfolio in the past, backing managers whom I saw as trusted veterans such as Hugh Young at Aberdeen or Martin Gray at Miton.But to get a more scientific view, I enlisted some help from French asset manager Carmignac Gestion, which has recently opened for business in Britain after a very successful track record on the continent with funds such as Patrimoine.

Using Morningstar Direct data provided by Carmignac, I searched for funds with a long track record (launched pre-1998), a decent asset base (more than $1bn), and a manager who's been at the fund for at least 15 years. That left just 92 funds in all.

They were then ranked based on three different rolling three-year performance measures: their percentile ranking using Morningstar's one to 100 system; their Star ranking (which adjusts returns for risk); and last but by no means least, their absolute performance (excluding fees).

Many of the names near the top of the veterans' list probably won't surprise anyone Neil Woodford features, as does Young, and small-cap manager Giles Hargreave. On a European level two managers stand out: Edouard Carmignac at Patrimoine (now available to British investors) and a wonderful Spanish value-based investor called Francisco Garca Params who's at Bestinfond.

Although these veterans are persistent' in terms of outperformance over time, that doesn't mean they'll be entirely consistent': in other words, the funds may suffer tough months, or even years.

For instance, in relative terms, Params' Spanish funds had a very nasty tail end of 2008 right through into 2009, but then started romping ahead again in 2010. So the smart thing might be to buy into a fund when a veteran is having a tough patch.

However, I'm also drawn by the fact that most of the veterans do a reasonably decent job of minimising very big losses (over 20% in a year), while consistently churning out periods of solid but unspectacular growth (lots and lots of solid months of small gains). They seem to have a sixth sense that helps them avoid the very worst of market volatility.

So with my short list in hand, how can we plot a path ahead for 2014? If you are primarily cautious, with concerns about market valuations, and over-exuberance in the face of US Federal Reserve tapering, then three managers look ideally positioned: John Chatfeild-Roberts at Jupiter Merlin Income, Martin Gray at CF Miton Special Situations and Edouard Carmignac at Patrimoine.

My analysis didn't look at investment trusts, but if it had, I'd have also put the Capital Gearing investment trust (LSE: CGT) in that cautious shortlist.

More optimistic types have two key choices. The first (and most probable in my book) is that the British stock market outperforms. If that's the case, Giles Hargreave at Marlborough Special Situations and Harry Nimmo at Standard Life UK Smaller Companies are in an ideal spot, as is Neil Woodford when he finally moves to Oakley to start his own business this spring.

A far more adventurous option might be to bet on a revival in Asia and emerging markets. In that case, you should opt for Angus Tulloch at First State Pacific, Hugh Young and his team at Aberdeen Global Asia Pacific and Aberdeen Asia, and Mark Mobius at Templeton Asian Growth.