Most fund managers must outperform to survive. When there are thousands of competitors – not to mention low-cost, passive investment options – there’s simply no other way to be noticed.
It’s easier said than done, though. Over 10 years, 70%-90% of funds fail to beat their benchmark and those that pull it off are never totally safe. Star managers move on, all managers experience bouts of underperformance and, eventually, you become a victim of your own success.
So, why would investors even bother with the sector when the odds are so stacked against us?
Because of Magellan. Magellan is an example of what can happen when everything goes right. Terrific investment performance coupled with fantastic marketing have led to a deluge of inflows and exploding profitability (earnings per share have grown 75 times over the past decade, the share price 150 times).
Can fast-growing fund manager Australian Ethical become the next Magellan? With just 4% of the funds under management (FUM), it’s a bold comparison; but it might even be better than that.
Australians are becoming more socially and ethically minded. Four-fifths of people say they’d be willing to switch funds so their money is invested according to their values while 64% say climate change is “a critical threat” and that “we should act now even if it has significant costs”.
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