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Beware the Cult of the Star Manager

Editor's Views: Holly Black says a team-based approach to investing may be a sensible approach and why the self-employed need more nudges to save for the future

Holly Black 1 November, 2019 | 10:41AM


The cult of the star fund manager is a peculiar one. But it’s true that some investors just have that something about them which catches the attention of the masses. It could be charisma, intelligence or a willingness to make contrarian calls – but often it’s just a case of making a lot of money over a period of time.

I can see why the investment industry embraces the cult of the star manager, though. Investments are an area that few people take an active interest in – it sounds dull and difficult, and is inherently one of those to-do list items that can always be left for another day. So, on the rare occasion that a manager achieves the impossible and gets Joe Public interested, it’s no wonder that the marketing machine goes into overdrive.

But the star manager culture is a dangerous one. It creates an environment where investors can recognise the name of the person looking after their money but have no idea where it is being invested; one in which ego creeps in while challenge and debate are edged out.

So the idea of eschewing funds where there is one name over the door in favour of those run by teams of investors seems to make a lot of sense. Sure, the idea of a fund run by five sensible people having sensible discussions and holding each other to account isn’t as exciting as the maverick manager making contrarian decisions or the bold investor striking out on his own, but when it’s your hard-earned savings you’re talking about, is excitement really what you want?

Make the Self-Employed a Priority 

The problem of pensions for self-employed needs urgently addressing by the Government. There are almost 5 million self-employed workers in the UK, that’s a staggering proportion of the workforce and one which is growing. Yet nothing is being done to help them save for the future.

Auto-enrolment has undoubtedly been a great thing for employed workers, but the Government can’t rest on its laurels. The reason auto-enrolment has worked is because it requires zero effort – you have to actively opt-out if you don’t want to save into a pension and most people simply can’t be bothered.

The self-employed, meanwhile, have to set up their own scheme, choose their own investments and pay their own contributions. On top of that, they must forecast what they will actually earn in a year to determine how much they can even afford to save for their future self.  All in all, not a very appealing proposition.

Having been self-employed in the past, I can attest that it’s something that you just never seem to get around to. Despite paying the maximum contributions into a pension in any job I have ever had, when I was self-employed saving for the future moved way down the priorities list.

Two key steps would help this situation. One: make it easy to save, and two: make it compulsory (at least to the extent that auto-enrolment is). If pension saving were incorporated into the annual tax returns process, the self-employed would at least have to actively consider whether or not to set some money aside for the future.

Remember, too, that this is the point in the year where you realise how much money you need to hand over to the taxman – if you could reduce the bill by squirrelling some money into a pension, I’m sure a lot of people would jump at the chance.

Rocky Horror Investment Show

Has investing ever seemed scarier than it does right now? Between Brexit, trade tariffs and slowing economies across the globe, investors have every right to feel spooked.

But reading through the investment horror stories of our panel of experts was something of a tonic – it’s a good reminder that there are always reasons to be fearful in investment; always worrying trends in the market and always disastrous punts to be made.

Human beings have a tendency to place a greater emphasis on the here and now – it’s known as recency in behavioral finance – and it’s why we’re notoriously bad at learning from the past.  

This week alone we’ve had a possible Brexit delayed, a General Election scheduled, a Fed interest rate cut confirmed, and a shock result in the British Bake-Off (OK, maybe that last one wasn’t really an investment concern). It’s all a bit overwhelming.

This might be a time to consider holding a bit more cash in your portfolio, or spreading your risk a bit further, but I don’t think it’s quite time to panic and make any big bets just yet. Doing so usually just means missing out on potential gains – as anyone who has avoided UK funds since the referendum has probably realised.

Because when we look back in a few years’ time, I’m sure we’ll all wonder what all the fuss about – there will be something else to worry about by then.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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