Midweek Musings – Is Bigger Better?

I was asked recently if one could speed up investment fund or ETF selection by picking a reliable fund group and then just getting one’s asset allocation by picking the right variants from their range. Some fund groups are so large, offering hundreds of funds, that this would certainly be feasible.

A quick observation

In truth the size of a financial services business offering investment products will impact on the style of the investment manager given the job of running the fund. With passive ETFs, there is no manager, so one is looking for reliable systems, good index selection and low fees. In this latter case, bigger will usually be better.

A fund manager in a huge organisation (often a bank) with multiple service offerings, like J P Morgan, BlackRock or HSBC, will be just a small cog amongst larger cogs in a huge machine and may have to work with a lot of policy and complaince constraints, which in some ways is a good thing. At the other end of the scale, the ‘one man and a dog’ fund managers with an external ACD (like FP,LF,TM, VT and so on – the people who provide the regulatory services) have immense discretion but not much supervision, which adds risk, as was seen recenty with the Woodford fiasco.

In between those extremes are a variety of firm sizes with narrower and broader fund offerings and with managers having more or less discretion. Knowing something about the culture of the firm within which a fund manger works is useful and in fact one of Morningstar’s ‘pillars’ in assessing funds focuses on this issue.

A bit of fun

I tend to like analogies using motor cars, so I am tempted to match some well known fund managers with car makers, just to give you an approximation of scale and style (if you know anything about cars – most of my readers do!). The names are a sample of firms offering funds to UK investors that are mainly widely owned with a sprinkling of interesting niche players.

The car maker’s national origins are only partially relevant – I am thinking about the range and sort of cars (including general reliability) that they sell and how they make them and finally I estimated the share of the market that they take!

Please take with a pinch of salt! If anyone is curious about how I picked the car makers, feel free to get in touch.

Fund Group	Car maker that comes to mind
Black Rock, JP Morgan, Barclays, HSBC, Morgan Stanley	General Motors
Fidelity, Janus Henderson, Invesco, Schroder	Fiat Chrysler
Aberdeen Standard, Legal & General	Toyota, Honda
Jupiter, Artemis, Liontrust, Premier Miton	Jaguar Land Rover, Mazda, Volvo
Baillie Gifford, Ruffer	Tesla
BNY Mellon, BMO, M&G	Ford Motor Company
Guinness AM, Polar Capital, Montanaro	Lotus
Ninety One, Columbia Threadneedle, First Sentier, Aviva	Nissan, Subaru
Royal London, WHEB	Skoda
MAN GLG, AXA Framlington, Aegon	Peugeot, Citroen, Renault, KIA
Crux, Teviot, Somerset	Audi, Porsche, Mercedes
Fundsmith, Blue Whale, Slater	McLaren, Lamborgini, Ferrari
Vanguard	Volkswagen
Woodford	TVR!
St James Place	Rolls Royce :-))
Virgin Money	Lada