September 2009

FUND SELECTION: fund research boutiques?

It seems easier to devise yet another way to rank and evaluate the paper trail that is past performance than providing a qualitative assessment. Niklas Tell comments... niklas_tell2.jpgOver the last couple of years, and even over the last couple of months, we have seen the launch of a lot of smaller independent equity research boutiques. When will we see something similar with managed investment research?

There are far more managed investment products (ie, funds) then there are equities, yet there are more equity analysts than there are fund analysts. There are, for example, more than 30 equity analysts following SEB, the Nordic bank. I am certain there are fewer that follow the funds run by the banks’ fund company. To put the number of equity analysts in perspective, Standard & Poor’s has some 40 fund analysts covering and providing qualitative assessment of over 1,500 managed funds globally. Morningstar has a team of 28 fund analysts across Europe and Asia.

We have seen the launch of a lot of independent equity research firms recently, such as Autonomous (covering banks and insurance companies), whereas we have not seen the same rush into fund research. The independent equity research industry even has associations looking out for their interests, such as The Investorside Research Association in the US, which according to its website “is a non-profit trade association of investment research providers that do not engage in investment banking, company consulting or research-for-hire. Our members constitute the leading investment research firms in the world, providing research that works purely for investors”.

Most fund research today is packaged in fund-of-fund products or is offered as part of something else, as in the case of investment consultants. I foresee a change just as we have seen a change with equity research, which used to be packaged with brokerage services and paid for by the investment banking side of the operation. After all, as Jean-Baptiste de Franssu, the CEO for Invesco Europe and recently appointed president of Efama, said in his introductory speech on Wednesday, 24 June at the FundForum International in Monaco, the two most important issues for the European fund industry going forward are distribution and pensions. On distribution he concluded that there are major problems which need to be solved as this is where product meets client. Independent fund research is certainly one piece in that puzzle. Yes, we have seen that Morningstar recently, and finally, decided to do in Europe what it has been doing in the US for a long time – providing qualitative research reports – and Standard & Poor’s is of course another firm that provides research on funds. But those are exceptions and I am confident there is room for more players. What if we only had two large firms providing equity research?

The fund research which is usually provided tends to be quantitative rather than qualitative. We have quantitative ratings on funds from Lipper and Morningstar and we have quantitative ratings on individual managers from Citywire. It seems to be easier to come up with yet another way to rank and evaluate the paper trail that is past performance than providing a qualitative assessment and express a balanced view on a specific fund. One reason of course being the large number of funds out there. Or is it that investors only want quant insights rather than insightful comments?

My questions this month to the professional audience of this magazine:

Is there a need for more (independent/standalone) fund research?

What would you look for from a fund research firm? For example, would it be research notes that provide qualitative assessments and express a balanced view on specific funds/managers? Or research notes that provide qualitative assessments and express a balanced view on individual fund companies?

Or what about research notes that provide a strategic take and express a balanced view on categories and list buy and sell candidates among the funds in that category?

Let me know at

• Niklas Tell is a partner at Tell Media Group AB

©2009 funds europe

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