Investing today is incomplete without talking about fund vehicles such as mutual funds. They offer tons of benefits like easy access to financial markets, portfolio diversification , and ease of monitoring, among a host of others. But one of the most significant benefits is that of professional management as investors entrust an expert money manager to prudently invest their hard-earned money. This expert is known as a portfolio or fund manager.
Who is a Fund Manager?
A fund manager is an investment professional who is appointed by a mutual fund company or trustee to manage one or more schemes offered by the fund house. This individual is responsible for managing a fund’s portfolio and taking responsibility for all its trading activities. They implement the investment strategy of the fund they manage in order to achieve their investment objective. Given that thousands of investors entrust this individual with their money, the role of a fund manager gains much importance.
Typically, a fund manager is a highly experienced professional who has cut their teeth in research as an analyst. It is, after several years of experience in market analysis, that an individual may get to manage a scheme on his/her own. Needless to say that apart from experience, a high level of education can be found as a common trait among most fund managers.
Investors should note that a fund may be managed by a single manager, co-managers, or a team of managers in which each manager is responsible for a section of the portfolio. A team of managers is usually appointed when the investment strategy of a fund is complex and/or it invests across a vast region.
Role of a Fund Manager
Research lies at the heart of everything that a fund manager does. Their day-to-day job involves selecting the best stocks, bonds, and other financial market instruments which will deliver results to the investors given the fund’s objective. They then trade in such securities that make sense for the portfolio and sell those which don’t. In order to do this, they need to delve deep into the financials of a large section of publicly and privately traded companies. They make use of several tools and software platforms to conduct this research.
The manager collects information, reads financial briefings, and strives to remain updated about global economic events. They also meet industry experts and company personnel to study the inner functioning of the company whose stock they intend to invest in.
Based on the results of their research, they create a shortlist of companies, which fall in line with the investment objective of the fund that they are managing. Then they trade on these stocks. A similar process is followed for bonds , commodities, and other assets in a multi-asset fund. In larger fund houses, a fund manager may have the help of a team of analysts to research companies and a team of traders and dealers to execute the buy and sell trades.
Apart from portfolio management, fund managers and their team are also responsible for preparing periodic reports for investors detailing the portfolio composition of the fund, explaining some of the major portfolio decisions that were taken, and performance. A fund manager may also accompany sales and marketing professionals from the company to various events in order to promote their funds and represent their company in investment-related panel discussions to deepen the brand appeal of the fund house in general and their managed fund(s) in particular. Managing costs associated with administering and operating a fund is also a key role played by a fund manager. All portfolio composition-related decisions are taken with efficient cost management in mind.
Liquidity and risk management are also important tasks performed by the fund managers. They have to ensure adequate liquidity in the fund. This means that the portfolio of assets held by their fund has to be liquid enough to be sold quickly and without too much loss in value if the investors wish to sell them.
How to Evaluate a Fund Manager?
After knowing who a fund manager is and what they do, an important exercise to undertake is learning how to evaluate them. The reason this is crucial is that, at the end of the day, it is the fund manager who is responsible for the investment strategy underlying the investment objective of a fund. Poor planning and execution of that strategy will result in even a sound investment objective failing an investor.
There are certain aspects in which investors can look at in order to evaluate a fund manager. Though these aspects are not the be-all and end-all of fund manager evaluation, they can give great insight into whether a fund manager is right for you and if they are succeeding at his mandate.
(a) Track record:
This measure is common between a fund manager and the fund when it comes to assessing performance. Though past performance is not a barometer for the future and no investment should be made solely on the basis of this, it remains an important component in selecting a consistent performing fund and manager. Consistent performance over market cycles indicates experience and expertise to navigate a fund portfolio through tough times as well as generate superior returns when markets are climbing.
(b) Investing style:
Different fund managers would handle the same fund portfolio differently. This difference is due to their different styles of investment.
In order to achieve the same objective, one fund manager may decide to invest for the long-term while another may take several short-term positions in stocks and bonds. While one manager may align the portfolio in line with the underlying benchmark, another may completely ignore the benchmark composition and create a portfolio according to their views on the market. Further, one manager may remain fully invested in the market nearly all the time while another may decide to liquidate part of the portfolio and invest it in cash equivalents till such time he finds a suitable opportunity to invest. These are just three examples of different investment styles.
Investors can make out the difference in investment styles by looking at the changes in the portfolio over the period that a fund manager has managed the fund. They may also enlist the services of an advisor to better understand investment styles of a fund manager.
(c) Is the manager invested in his own managed fund?
This may seem like a subtle point but is quite important. A fund manager charges a fee for managing other peoples’ money, but do they invest their own money in the fund that they manage? If they do, it indicates their conviction in their own stock picks. After all, if their stock-picking capabilities are so superior that they can beat market returns and multiply investors’ money, would they not want to gain from that themselves?
(d) Outperforming the benchmark index:
Each fund has a benchmark index that it intends to outperform. If a fund manager consistently outperforms the benchmark index, then they may be worth investing with. It is important to consider a manager’s performance during market declines, though. Because when markets are rising, many managers may better their benchmarks and it is difficult to differentiate the outperformance being due to luck or skill. Investors should choose a skilled manager over one who just got lucky.
How Do Fund Managers Decide Where To Invest?
As mentioned earlier in the article, one needs to spend several years as an analyst before being given the responsibility of fund management. This experience is key for a budding manager in shaping his market insight and choosing the right investment given the market condition.
A fund manager deep dives into company fundamentals when creating or managing a stock portfolio. They look at quantitative metrics including liquidity ratios, profitability ratios, trends in profit and revenue growth, and cost indicators to create a sector and industry-wide list of companies that can fit the investment mandate of the fund.
They overlay this company-specific information with the broad market trend in terms of the direction of market movement, the sector and industry-specific trends, the direction of the economy and fiscal and monetary policies, the interest and money movement by foreign investors, among other factors.
After assessing these factors, a fund manager prepares the final list of those stocks that will become part of the portfolio based on his outlook and past experience in analyzing stocks.
A similar process with bond-specific factors and metrics is employed for choosing fixed income instruments.
In choosing appropriate investments, a fund manager may have the support of the analyst team which does a lot of the aforementioned tasks and presents their results in an investment committee. After an internal brainstorming, the committee selects the right investment avenues for a fund. Sometimes, a fund company may outsource part of this research work to specialist companies, but the final decision on where to invest is taken by the fund manager himself.
List of Top Fund Managers
Here is a list of some of the top fund managers from India. The list is only indicative and does not follow any particular order or ranking.
Prashant Jain – Executive Director and Fund Manager – HDFC Mutual Fund
Prashant Jain is a mutual fund industry veteran with close to three decades of experience. He is presently the Chief Investment Officer, Executive Director and Fund Manager at HDFC Mutual Fund. He was earlier engaged with Zurich Asset Management Company (India) Private Limited as a Chief Investment Officer, Head of Funds Management, and Fund Manager, which was bought by his current employer.
He has a long track record of consistent performance and currently manages HDFC Equity Fund , HDFC Top 100 Fund , and HDFC Balanced Advantage Fund by himself and HDFC Hybrid Debt Fund along with Shobhit Mehrotra.
Chirag Setalvad – Senior Fund Manager – HDFC Mutual Fund
Chirag Setalvad has two decades of experience in investment banking, financial analysis, and money management. He is currently a Senior Fund Manager of Equities at HDFC Mutual Fund. His stock picking ability is well known and reflects in the performance of his funds, specifically HDFC Mid-cap Opportunities Fund.
Apart from the above, he manages the HDFC Small Cap Fund , HDFC Hybrid Equity Fund , HDFC Children’s Gift Fund, and HDFC Long Term Advantage Fund on his own. He co-manages HDFC Retirement Savings Fund – Equity Plan , HDFC Retirement Savings Fund – Hybrid Debt Plan and HDFC Retirement Savings Fund – Hybrid Equity Plan with Shobhit Mehrotra and HDFC Multiple Yield Fund – Plan 2005 with Anil Bamboli.
R. Janakiraman, Vice President & Portfolio Manager – Franklin Templeton
Janakiraman Rengaraju has been in the investment management industry for nearly a decade and a half (and nearly two decades in all) and is presently Vice President & Portfolio Manager – Equities for Franklin Templeton India AMC Ltd. He provides research support on auto, media, and telecom sectors. Prior to his current employer, he has worked for the Chennai-based Indian Syntans Group, and for UTI Securities.
He is known to have a major quality-bias when selecting stocks for the portfolio of funds that he manages. He is currently managing the Franklin India Opportunities Fund , Franklin India Prima Fund , and Franklin India Smaller Companies Fund on his own and co-managing Franklin India Equity Fund with Anand Radhakrishnan.
Does a fund manager change frequently?
No. On the contrary, the fund manager is the backbone of the strategy and philosophy of a scheme. A change in the fund manager may bring about a change in the investment methods and stock selection.
Is a fund manager answerable to investors?
Yes. As an investor, you can always reach out with your questions to Investor Relations cell of the fund house and query specific questions to the fund managers.