Income and Growth Survey: You can't manage all alone

Fund managers can make all the difference, so how to select the right one?

Picking the right fund manager to manage your investments can be a bit like choosing which horse to back in a race. Here are some top tips to selecting the right one:

n Look for award winners: Many fund managers can claim to have won investment awards, so the key is to look for recent awards relevant to where you want to invest. Just because a fund manager was top performer in Far Eastern stocks does not mean that it is the best fund manager for your UK equity portfolio.

Better than absolute performance awards, is to look at awards for underlying investment management skills. Money Management magazine, along with Standard & Poor's Micropal has, for nine years, run an annual award for fund management.

By comparing performance and volatility against similar funds across unit trusts/OEICS, investment trusts, life funds and pension funds, it rated Royal & SunAlliance top, although it was beaten in the unit trust/OEIC category by Fidelity Investments, and by Henderson Investors in the investment trust category.

Robert Mathews, director of institutional and retail funds at Royal & SunAlliance, puts its success down to good teamwork. "We have got an exceptionally good team. Our turnover of fund managers is extremely low and we have a culture of cooperation and help. I think that we have got a lot of stars, but we are not creating people with egos that destroy team spirit."

n Compare like with like: Last year, Mercury Gold & General was the top performing fund over one year in the commodity and energy sector, despite its price falling by 3.59 per cent over the year. On the other hand, Baring American Growth rose 37.85 per cent, but was still only the fifth best fund in North America. In overall performance terms both funds reflected trends in their investment sector.

But while Mercury did better than TSB Natural Resources, which fell by 13.44 per cent but still came fifth in its sector, the top performing Fidelity American fund rose by 84.19 per cent, more than double Barings' result.

Would you be better off with a tracker? Some market sectors can be very volatile. If you are not prepared to lose more money than other investors, a tracker fund has the advantage of shadowing major investment markets.

There is no guarantee that you will not lose money but at least if you do you will be in good company - the chances are that most other investors would have done so too.

n Compare reward against risk: Volatility is all about how far and how fast prices rise and fall. A highly volatile fund may make you a fortune, but could lose you one, too. A less volatile fund may help you sleep sounder but will never be a get-rich-quick investment.

n Read all about it: Follow the business as well as the money pages and you will quickly build up a feel for some of the underlying trends in the markets. A visit to a local library or surfing the Internet can help to build up knowledge too. Some of the top sites are shown at the end of this article.

n Pick an adviser's brains: A good independent financial adviser (IFA) who specialises in investments can be a real help, especially if they take the time to meet the fund managers and keep up to date on all the latest thinking and changes.

Some even manage their own investment portfolios, although many of these have performed poorly against other funds, and the extra costs can mean that the only one likely to get rich is the adviser. If you are tempted, look carefully at past performance against funds with similar investment objectives.

n Take a second opinion: Whenever a share is sold, one investor believes it is a good time and price to buy at, while the other believes it is a good time and price to sell. They cannot both be right.

However good an investor you may be, getting a second opinion from a reputable IFA may be money well spent. It is all too easy to overlook something, and no one is infallible. Look to negotiate a fixed fee for any second opinion, or to place any buying through the IFA at an agreed price or commission level.

n Horses for courses: Some fund managers have a reputation for good management and inspired stock selection in a particular market. But that does not mean that they will be as successful in other markets. Look for consistently good performance rather than any short-term gain - it just might have been good luck.

n Runners and riders: As with betting on the horses, the jockey is as important as the horse. Individual fund managers switch companies and their performance record can go with them. A good IFA should be aware of important market moves - but remember that a good jockey cannot win unless the horse has potential too.

n Keep ahead of the game: Never invest in a market or fund manager just because it has recently enjoyed record performance. Investing with a fund manager that has a first-class track record is no guarantee of success, especially if their top fund managers have just jumped ship. The new team may take time to repeat the success, or may fail to do so at all.

The ideal fund reflects the underlying market but, over time, pulls slowly away from the competition. If your investments achieve that, you will have chosen well. It means selecting not just the right market sectors but the right fund manager too.

For independent financial advisers, call IFA Promotion on 0117 971 1177

Leading investment web sites:

Autif (Association of Unit Trusts and Investment Funds) at: www.investmentfunds.org.uk

Interactive Investor at www.iii.co.uk

Micropal at www.micropal.com

Reuters HSW at www.hsw.co.uk

Trustnet (investment trusts) at www.trustnet.co.uk

Andy Couchman is publishing editor of `HealthCare Insurance Report'