Page 10 - FWP Wealth Adviser Newsletter - May 2025

ISSUE 108
MARCH 2025

weathering crises, as managers with disciplined processes, Conclusion: Integrating Art and Science for
robust risk management, and adaptive strategies are better Long-Term Success
equipped to navigate uncertainty. Selecting a fund manager is both an art and a science.
Morningstar stresses the need for “effective capacity Quantitative analysis provides the foundation, enabling
management to avoid performance drag from excessive fund investors to assess performance, risk, and consistency. Yet
size”. Large funds may struggle to exit positions or capitalise it is the qualitative dimension-the philosophy, culture, and
on opportunities during market dislocations, while smaller, trust-that distinguishes truly exceptional managers.
nimble managers can respond more quickly. As the investment landscape evolves, Australian in-
Firstlinks and The Inside Adviser both warn about the vestors must balance data-driven scrutiny with nuanced
risks of style drift or loss of focus during turbulent periods. judgment. The best outcomes arise from integrating
Managers who abandon their stated approach in pursuit of rigorous analysis with a deep understanding of people and
short-term gains may expose investors to unintended risks. process. Ongoing review, adaptability, and a commitment to
resilience are essential.
Practical Steps for Building Resilience “In the evolving world of investment, the best outcomes
Investors can enhance resilience by: come from blending the art and science of fund manager
• Conducting thorough due diligence, including site visits, selection”. By embracing this holistic approach, investors
interviews, and reference checks can build portfolios that withstand uncertainty, preserve
• Diversifying across managers with complementary styles wealth, and achieve their long-term goals.
and philosophies
• Monitoring ongoing performance and adherence to stat-
ed processes References
• Asking probing questions about risk management, capac- 1. Firstlinks. (2023). How to choose a good fund manager. Graham Hand.
ity constraints, and crisis response plans Retrieved from: https://www.firstlinks.com.au/how-to-choose-a-good-
fund-manager
Academic research supports these practices. A 2021 2. Morningstar Australia. (2023). What investors should look for in a fund
study in the Journal of Portfolio Management found that manager. Annika Bradley. Retrieved from: https://www.morningstar.
portfolios diversified across managers with distinct ap- com.au/funds/what-investors-should-look-for-in-a-fund-manager
proaches exhibited lower drawdowns and faster recoveries 3. The Inside Adviser. (2023). How to select a fund manager. Drew
during market crises. Meredith. Retrieved from: https://insideadviser.com.au/how-to-select-
a-fund-manager/
Due Diligence Checklist for Australian Investors 4. CFA Institute. (2022). Investment Manager Selection: Frameworks and
To assist investors, we offer a practical checklist: Best Practices. Retrieved from: https://www.cfainstitute.org
• What is the manager’s long-term track record, and how 5. Statman, M. (2019). Behavioural finance: The second generation. CFA
has it performed in different market environments? Institute Research Foundation.
• Is the investment philosophy clear, consistent, and 6. Journal of Portfolio Management. (2021). Diversification and
well-articulated? Resilience: Manager Selection in Crisis. Vol. 47, No. 4.
• How is the team structured, and what is the turnover rate?
• Are the manager’s interests aligned with those of inves- All web links were accessed in May 2025. For Australian investors seeking
tors (e.g., co-investment, fee structures)? further guidance, consult your licensed financial adviser and refer to
• How does the manager manage risk, capacity, and liquidity? ASIC’s MoneySmart website for additional resources.
• Has the manager demonstrated resilience and discipline
during past crises?

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