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How has covid hit research houses trying to rate funds?

Visiting managers on their own turf ‘can give a sense of perspective’


Jessica Tasman-Jones

In normal times, Morningstar’s fund research team conducts nearly all fund manager meetings face-to-face, but in early March it quickly realised it was going to have to reschedule its upcoming meetings as video or conference calls.

That required a lot of planning in a short amount of time but by the end of Q2 the team had completed a full review of nearly 300 funds it already covered and introduced new ratings on 15 new active and passive funds.

Most research houses our sister publication Portfolio Adviser spoke with said rating activity had remained at normal levels during lockdown or even picked up.

This is an encouraging sign as the investment industry takes a more cautious approach to reopening offices than the government, which has been pushing for workers to return as of the start of August.

Square Mile and RSMR both highlighted that a spate of fund manager exits had prompted more activity than normal.

In March, RWC revealed it was poaching Nick Clay and his team from BNY Mellon Investment Management while Ninety One cited poor health as the reason Alastair Mundy was stepping back from his value funds.

Additionally, Baillie Gifford manager Charles Plowden and Marlborough Special Situations and UK Micro-Cap Growth manager Giles Hargreaves have both announced their impending retirements.

Square Mile removed ratings from nine funds, up to the end of Q2, seven of which were due to fund manager departures.

In April alone RSMR placed 10 funds under review, eight of which were due to managers exiting.

See also: Is Covid prompting a career rethink for fund managers?

‘Actually we’ve been able to gather as much information via Zoom’

Fundcalibre managing director Darius McDermott says, if anything, the contact the research house has had with managers has picked during the worst of the pandemic, especially with those based outside the UK.

“Whereas before we would have put much more emphasis on face to face meetings, actually we’ve been able to gather as much information via Zoom, etc,” says McDermott.

“Fund managers have been very willing to take part in video calls and many have been scheduling extra webinars during the crisis to keep people up to date on what they are doing.”

Fundcalibre will go back to face-to-face meetings once the industry is back in their offices, but could end up reducing those meetings to once a year.

“If the pandemic has taught us anything it is that video calls are actually a very good substitute,” he says.

That is good news for the foreseeable future given most asset management workforces are still working largely from home.

This month, Schroders told staff they could continue with flexible working permanently, although it also highlighted the benefits of offices in many situations.

Columbia Threadneedle and Aviva Investors both tell Portfolio Adviser that around 90% of staff are still working from home, while BNY Mellon Investment Management and M&G Investments say the vast majority of their employees are working remotely.

LGIM parent Legal & General has around 18% of staff in the office compared to 4% at the height of the pandemic, while Invesco started reopening its offices this month but split shifts mean no more than 15% of staff are in the office at any one time.

FE Fundinfo research manager Charles Younes says there are some advantages to remote meetings, such as the time saved on travelling to meet different fund managers. Younes describes in person meetings as “important but not crucial” to the team’s research process.

Both Fundcalibre and FE Fundinfo rebalance their ratings twice yearly with the latest decisions made in July.

See also: Blue Whale and Allianz Strategic Bond latest funds to land Fundcalibre Elite Rating

The challenges of rating funds from a home office

But not everyone is feeling happy with the effect social distancing has had on fund manager meetings.

While Adviser Centre managing director Peter Toogood is used to working remotely, he says the boutique fund ratings house has become more cautious about validating changes to its recommended funds lists, at least until they’ve had a chance to meet managers face-to-face.

“Now that physical visits to fund managers can no longer take place we’re dealing with an additional, digital barrier, which makes understanding body language and the flow of two-way interaction more challenging,” Toogood says.

While Morningstar has conducted hundreds of reviews of funds on which it has existing ratings, director for manager research ratings Jonathan Miller says the situation is more challenging for introducing new ratings.

“When exploring new ideas, there are certain perspectives you might not capture by not meeting people in the flesh, such as a sense of culture within the building,” Miller says.

“As things stand, we’d still be looking to meet the wider investment team, analysts and cover all the bases. But with less travel on the horizon, we all need to adapt, likely meaning more video calls.”

In the early stages of the pandemic, he says this had little impact anyway due to the sheer number of updates from Morningstar’s rated managers amid the sharp market falls.

Striking a balance between the old and new approach

Even research houses that reported remote meetings were working smoothly highlighted the benefits of in-person meetings.

Square Mile head of research John Monaghan says its preference is still to conduct fund manager meetings face-to-face.

“It is important to visit fund managers on their own turf. It can give a sense of perspective to a number of softer aspects about him or her, and the firm generally, that are simply unobtainable over the telephone or on a video call. We also find it very helpful for building relationships,” Monaghan says.

Younes adds that it is useful to meet the wider team and see how they interact with each other.

RSMR would ideally hold several meetings with fund managers or firms it has not dealt with previously, including at least one at their offices to get a feel for the culture, says founding director Ken Raynar.

Nevertheless, Raynar says: “I would argue that in the research team we are all agreed that a balance needs to be struck between the old and new approach, but [the pandemic] has shown that not having face to face meetings is not a barrier to getting the work done.”

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