Warnings about investment practices
Marathon Asset Management’s London-based director Jeremy Hosking sounds a warning about modern fund management practices.
Thursday, September 30th 2004, 7:14AM
Hosking, who was in New Zealand recently to talk about the Marathon fund which Tower’s international share fund invests in, is cautious of two investment practices.
One is the increasingly short-term approach of managers and the other is the asset allocation approach taken.
He says the average period of ownership of United States equity funds had fallen from 20 years in 1964 to just three years, and that the average holding period of stocks within a fund had gone from six years to 11 months.
Hosking lists the following things as drivers behind this trend: investment manager job security, monthly reporting, asset gathering, active risk, hedge funds and sell-side benefits.
Marathon aims to adopt a “long duration” approach to shares and Hosking describes this as being like the bond market. With fixed interest an investor is rewarded for long-term investment with higher interest rates (expect when the yield curve gets inverted).
Hosking reckons that a share investor will likewise be positively rewarded for long term buy and hold strategies.
He pushed these advantages to advisers on his visit suggesting that long duration investing had become a “minority sport.”
The other trend Hosking noted is that fund managers have gone away from adopting a top-down country approach as a way of deciding where to invest, to an approach which is based on picking industries.
Hosking is still unsure if the newer approach will work because the people picking the sectors have to get that right, just as they did when they were trying to pick a country.
Likewise he is not sure whether managers who take this approach are able to time their exit well.
Hosking uses the crash of the technology sector in the late 1990s as an example of this problem.
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