Funds management, good things in small packages ::

Author: James Kirby
Date: 09/09/2007
Publication: The Sunday Age

YOU may not have heard of "the VIX". It sounds like a curse, but it's the Chicago Volatility Index - a sort of heart monitor for global sharemarkets: If it's high, we're in rough waters, if it's low, we'll have plain sailing.

Over the past few weeks the VIX has been flapping furiously - the long-term average reading on the VIX is 18 but it's been as high as 30 in recent days. In other words our sharemarket is in rough waters and it may remain there for months.

In volatile markets, blind faith no longer works. If you've been watching those sharemarket games in which weathermen and astrologers regularly beat market professionals, you'll find the natural order of things is about to be restored.

In this climate, investors turn to experts - especially "active" Australian share fund managers - to look after their money. But the big question is, who do you turn to? The latest batch of results from the fund managers found a remarkable trend that's confirmed beyond doubt - the bigger the fund manager, the more likely they are to let you down.

The biggest names - Axa, AMP, Colonial, ING and Macquarie - are among the institutions with funds that perennially fail to match even average market returns.

I reckon you could almost construct an index like the VIX, except it might be based on advertising budgets - the bigger the budget, the worse the results.

And that's before I even go into the desperate business of big funds - such as Colonial First State Imputation Fund or the Axa Australian Equity Growth Fund - trading like trigger-happy day traders and passing too much tax on to investors.

So who's good? Well, don't make the mistake of trusting those star rating systems you see on adverts. Unfortunately a fund manager can get stars just for ticking boxes on how many meetings they hold every week or how well they recycle annual reports.

To generalise: small is beautiful in the funds management game. Some of the more promising emerging smaller "active" Australian fund managers - such as Roger Montgomery at Clime Capital, Sam Baillieu and Dean Fergie at Opis Capital and Campbell McComb at Armytage - have just been profiled in a new book - Young Guns, by former Age journalist Eli Greenblat.

For all their resources, many fund managers just don't make the grade. Only three of the 19 biggest Australian share funds - BT Imputation Fund, Challenger Australian Share Fund and Suncorp Australian Share Fund - beat the ASX 300 index over the past five years.

Some think these often pitiful results mean you should put your money in an index fund - where a computer program runs your money in a "mirror" of the index. That's a partial answer, but it does not offer a full alternative. Start your search for fund managers at the bottom of the tables among the guys with the smallest amounts under management - they're the hungry ones without the fat advertising budgets.

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