Given how many fund management groups there are, it is surprising how few do any meaningful independent research for themselves.
Some, of course, are passive managers, who do not need research as they simply seek to replicate the relevant indices. Others, though they pretend otherwise, are closet trackers, meaning they also buy only what is in the index and juggle with the weightings – holding a smaller proportion of banks, for example, if they don’t like that sector.
A third group are active managers who, in principle, make their own decisions but in practice rely heavily on the investment banks to come up with the main ideas, which they will then sift through.
Then finally there are the houses that really are active and do devote much of their time and energy to thinking about economic trends and looking for companies that they believe have genuine prospects.
It was one of the more successful of these, Neptune Investment Management, that took me and a few other journalists to California this week to see its research work in action by accompanying its analysts on visits to companies in which it may or may not invest.
Most are connected to the Silicon Valley heartland of technology and data and two at least seem to be carrying all before them.
Yelp, a web business that is broadly similar to Yellow Pages in seeking to provide a directory of local businesses, uses recommendations from the public to identify the best in an area and then seeks to persuade them to advertise. Its growth rates are phenomenal.
A second, Pandora, is an internet radio station that in effect tailors its programming to the musical tastes of each individual listener. It is already number one in 15 of the major US markets.
Technology of a different kind, genome research, lies behind a new treatment for prostate cancer being developed by Medivation.
But ironically the most intriguing product is one in which you can’t invest because it is private. This is a business called Mission Motorcycles, which claims to have developed an electric motorbike better in all respects – range, speed, acceleration – than conventional petrol-driven superbikes, while having batteries that take only 10 minutes to charge.
It all sounds too good to be true, but we shall soon know if it is, because Mission Motorcycles’ chief executive, Mark Seeger, says he plans to start full production next year. If all goes according to plan a few years after that, he will apply the same motor and battery technology to outboard motors and lawn mowers.
I would not know whether any of these businesses will make rewarding investments, but the bigger point is that I had not heard of any of them until this week – which does rather prove Neptune’s point. To be a successful investment manager, there really is no substitute for getting out there on the ground and looking.