The Fund Manager — Who Is Actually Making the Decisions

A fund manager decides which securities the scheme holds, in what proportion, and when those positions change. They work with a research team, and the decisions are taken within a framework rather than alone at a desk.

The daily reality includes a good deal that is not selection. Money arrives from new investors and has to be deployed. Money leaves through redemptions and has to be met, sometimes by selling things the manager would rather have kept. Both of those are constraints created by other investors and neither has anything to do with the manager view.

Our guide on where your money goes after you press invest follows the route your instalment takes before it reaches any of this.

This is the part that surprises people, and it is the more important half of the answer.

A scheme has a stated mandate that defines what it may hold, and category rules set minimums and maximums for the type of holding. A manager running a scheme in one part of the market cannot move the money elsewhere because they believe elsewhere looks better. The mandate binds them, and it binds them during exactly the periods when moving would have helped.

There is a second constraint that gets less attention, which is how much money the scheme is running. A manager working with a very large sum in a segment of smaller companies has fewer holdings they can realistically use, as our page on fund size and AUM explains. That limit is created by other investors arriving rather than by any decision of theirs.

So a scheme lagging its category is sometimes a manager decision, and sometimes it is the category having a poor stretch with a manager who was not permitted to leave. Reading the two apart is what our page on the benchmark is for.

The mandate is also why the category decision is yours rather than theirs. You decide which part of the market you are in. They decide what happens within it.

Managers move between fund houses, retire, or are reassigned, and the scheme carries on with its history intact.

That history is the thing to be careful about. A record built over six years by somebody who left last year describes what that person did, and the scheme kept the numbers while the decision-maker walked out of the door. Anybody comparing schemes on past performance without checking who produced it is comparing something other than what they think.

What we would not do is treat a change as an automatic reason to exit. Switching costs tax and possibly exit load, and the replacement may well run the scheme in a similar way, particularly where the process is genuinely institutional rather than personal. The sensible response is to note it and watch whether the portfolio starts behaving differently, using the monthly document our page on the fact sheet describes.

Fund houses differ on how much rests with the individual, and it is a fair question to ask about any scheme you hold.

At one end, the process is documented and shared, research is central, and an individual leaving changes less than the headline suggests. At the other, a scheme reflects one person judgement closely, and that person leaving changes a great deal.

Neither arrangement is wrong. What matters is knowing which one you are in, because it decides how much weight a manager change deserves. You will not find this stated plainly in any document, which is why it is worth asking rather than assuming.

An index scheme has a manager too, and the job is a completely different one.

They are not choosing companies. They are matching an index as closely as possible, handling the money coming in and going out, and adjusting when the index itself changes. Success is measured by how little the scheme drifted from what it was tracking, not by whether it did better.

That is worth understanding even if you never hold one, because it clarifies what the selection is worth elsewhere. Our page on index funds covers the comparison, and the expense ratio page covers what the attempt to do better costs.

Less than the coverage suggests, but the useful facts are all published and take a few minutes to check.

The scheme documents and the monthly fact sheet name the manager and the date from which they have run the scheme. That tenure figure is the single most useful number here, because it tells you how much of the displayed history belongs to the person currently in the chair.

You can also see how many schemes one person manages, since the same name often appears against several. That is normal where the schemes are related, and it is worth a second look where somebody appears against a long list of very different mandates.

What you will not find is anything about how decisions are actually taken inside the fund house, or how much of the outcome came from the individual rather than the team. That part is not published anywhere, which is worth remembering before treating a manager as the reason to hold a scheme.

Less than the coverage of star managers suggests, and here is the order we would put it in.

• Your horizon and your allocation decide most of the outcome. See asset allocation.
• The category comes next, and that choice is yours rather than the manager.
• Whether the scheme has stayed true to its mandate over several years, including a poor one.
• Who is running it and since when, which is a check rather than a starting point.

Choosing a scheme because of a personality is how people end up in categories that do not suit them. We are distributors rather than investment advisers and we recommend neither schemes nor managers, but if you want help reading what you already hold, get in touch.