If the fund strategy incorporates taking a view on the market, it is important to appreciate how that view has been formed and to assess the resource and capability of the manager in this regard. The investor may want to ensure the manager’s market view agrees with his/her own outlook. Certainly, investors should look for consistency between the manager’s market view and the intended fund strategy. Furthermore, comparing the market outlook with the manager’s fund level forecasts should give the investor some context in assessing the value-add of the manager.
While past performance is no guide to future returns, historic returns may provide some context for expectations for future returns. Looking ahead, investors should aim to assess potential market risks and what effect they may have on the strategy – as opposed to asset or manager specific risks. When considering the manager’s view of risk, investors should also watch for any imbalance of upside versus downside which may highlight the manager is not adopting a balanced view. Listed below are a set of questions that should help draw out this information:
