Fisher Funds hauled in a total crowd of more than 2,000 punters during its November national tour: a good catch by NZ measures.
But the impressive turn-out for a fund manager slide-show may have been underwritten by fear rather than fortune-seeking.
Fisher chief investment officer, Frank Jasper, said the mood among the 2019 crowds was in stark contrast to previous years.
“There’s a lot of worried people out there,” Jasper said. “For the first time many NZ investors are wondering how they’re going to survive when bank term deposit rates are so low.
“Even though those investors could have benefited from a more diversified strategy in the past, they haven’t really had to until now. There’s been a complete change.”
The interest rate squeeze, it seems, is finally pushing recalcitrant term deposit investors into the arms of fund managers – realising a long-held industry dream.
However, Jasper said the transition from a saver mentality to an investor mindset is difficult for traditionally risk-averse clients.
In fact, the Fisher roadshow was almost entirely geared to easing investors up the risk curve with the extra complication of defending the unfashionable merits of active management.
Jasper said while active management has had a bad rap in recent years, the approach would likely become more valuable in an era when overall market returns are expected to shrink.
“Over the last few years the rising tide has lifted all boats, which has provided less opportunity for active managers,” he said. “But if markets are flat then the value of picking the ideas and companies that outperform increases.”
Whether active management signals such as higher stock cross-dispersion rates are growing louder is not yet clear but Jasper said passive-way shouldn’t be the only game in town.
“The trend to passive management can go too far,” he said, “it’s not the only way to invest.”
Not that Fisher is averse to a bit of index-tilting at times. The manager does use futures from time to time to gain market exposure, Jasper said.
Regardless, he said the standard index enthusiast argument that the average active manager can’t beat the benchmark – so why bother – mis-states the case.
“Of course, in aggregate all active managers can’t outperform the index,” Jasper said. “It’s a zero-sum game.”
As well, he admitted winning the zero-sum game has become even more difficult, in the NZ market at least, evermore stand-alone retail investors – the historical fall-guys for active managers – hand over management duties to funds (including exchange-traded funds).
“The real question is can some active managers build the processes, team and culture that give them a better chance of out-performing the average,” Jasper said.
He said passive funds come with a cost, too, which some investors don’t account for when measuring performance.
According to the latest Melville Jessup Weaver (MJW) investment survey, Fisher does have a decent record of beating the NZ equities index after fees over most time periods. The Takapuna-based manager is also one of the handful of local firms, including Milford Asset Management, that lean heavily on performance fees: the business booked a record $100 million revenue in the last financial year as performance fees rose 75 per cent.
If the 2019 tour was any guide, though, Fisher’s hordes of investors (it has about 250,000, mostly through KiwiSaver), could be more demanding in the future.
As well as the general concern about interest rates, Jasper said a notable feature of the just-completed roadshow was the spike in investor queries on environmental, social and governance (ESG) investing.
“The industry has been talking about ESG for some time but the strength of conviction among investors has been building year after year,” he said. “This year we had more questions about ESG than our performance.”
While there is still a gap between a simplistic ‘sell everything’ mentality of some retail ESG die-hards and the more risk-oriented approach of most fund managers, Jasper said the industry needs to find a better way to engage on the issue with investors.
“We have to have better answers to investors’ ESG questions other than how it affects our risk models,” he said. “There must be another way of explaining how we think about ESG issues within evolving, real-world business models.
“And it should be focused on sustainability rather than hard-and-fast rules.”
Possibly, the ESG-anxiety may not be sustained during a serious market downturn: but that’s a worry for another year.
