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Flagship funds do not really express a fund manager’s investment conviction, argues Simon Hopkins, Singapore-based CEO at Milltrust International.
“What is important for us, is that the manager demonstrates his ability to create alpha, and that is rarely reflected in the performance of the group’s flagship long-only funds, which are usually managed in line with an index,” he told FSA.The Singapore- and London-based firm manages an emerging market (EM) multi-manager product. Hopkins noted that multi-manager funds are different from fund of funds (FOFs): the latter invest in multiple underlying funds, while the former give investment mandates to external asset managers to invest a portion of their funds’ assets.
He believes that although flagship funds may have overweight positions in certain stocks, they will still have positions in other constituent stocks found within their indices. “So the managers are never really able to express themselves fully as stock-pickers.”
Hopkins added that most indices usually have huge weightings to the biggest companies in a particular market, which he views as “boring”. For example, buying the Philippine Stock Exchange Index will mostly give investors exposure to the country’s biggest stocks, which are usually conglomerates.
“There may be good things going on in those conglomerates, but overall they are not going to be the most exciting stocks,” he said.
When Milltrust finds a suitable manager for a slice of its EM product, that firm is given a mandate to look after around 25 to 35 stocks in its area of focus.
The number of managers at a given point in time will depend on Milltrust’s asset allocation call, Hopkins said, but did not reveal the portfolio’s current geographic allocations.
There are at least 10 fund managers in the Milltrust Global Emerging Markets strategy, which are usually large domestic fund players. The fund, which was first launched in 2012, has around $500m in assets, according to Hopkins.
Some of the fund managers within the strategy include Saudi Arabia-based Sedco Capital, Sao Paolo-based Itau Asset Management, Lion Global Investors in Singapore, Seoul-based Korea Investment Management, and other fund managers located in South Africa, Russia and China.
Hopkins explained he prefers the larger players over boutique firms because the majority of his investors are institutions, which are more cautious.
“Post-financial crisis, investors wanted to eliminate counterparty and key-man risks, and these go with small boutique managers.”
Nevertheless, he personally likes boutiques: “People running boutique businesses are highly-focused, highly-incentivised and are usually better than people working in larger organisations.”
He noted that the firm’s wealth management subsidiary, East India Capital Management, includes funds managed by boutique firms.
The Ucits version of the Milltrust Global Emerging Markets Fund versus the MSCI Emerging Markets Index since inception, according to FE data. Note: The fund does not have any benchmark index.