- Rule of Acquisition
- Posts
- Are fund managers full of it?
Dear Investors,
Racy title, but let me explain.
This week, I read a post from a value fund manager who was throwing shade on quality fund managers.
In the post, the value manager referenced a news article, which alluded to Fundsmith as an underperforming fund. Of course the post ended by saying that the value manager invests differently.
Terry Smith, the founder of Fundsmith, is known as British Warren Buffett.
So its quite brave to throw shade at him and his fund.
Let’s talk about shade throwing and look at how our portfolio stacks up.
Who is throwing shade?
Every dog has its day
Our portfolio
Conclusion
I run a top-quartile fund
Who is throwing shade?
We are going to call the guys throwing shade Value Fund. Their fund had an incredible run over the past two years.
Three years ago they had $60 million in assets under management. Then they had superb performance and the money flowed in. They now have over $2 billion in assets under management. Remarkable.
Here is their January 2026 returns data. Over the past year, they have returned 38% compared to a benchmark of 19.6%.
Brilliant. Maybe we should be listening to them.
Time period (Jan 2026) | Value fund | Benchmark | Out performance |
|---|---|---|---|
1-Year | 38.1% | 19.6% | 18.5% |
10-Years | 13.6% | 13.1% | 0.5% |
But wait…
Lets go back two years to January 2024 and look at the fund’s return data.
Things don’t look as good. Over 1-year and 10-years they underperformed their benchmark.
Never throw shade. Underperformance happens to everyone.
Time period (Jan 2024) | Value fund | Benchmark | Under performance |
|---|---|---|---|
1-Year | 16.4% | 17.0% | -0.6% |
10-Years | 8.3% | 9.1% | -0.8% |
Every dog has its day
The market is filled with different investment styles. That’s what makes it so efficient.
When one investment style is in favour (outperforming), another will be out of favour (underperforming).
Think about it this way. If one set of stocks is getting all the attention and going up, there is going to be another set being neglected and not going up. When prices get too high, investors get nervous and go looking for other opportunities. They find the neglected stocks and things change.
The fund manager who is winning gets to walk around like a rock star and throw shade on everyone else.
But the tables always turn.
The success of a fund in its good years attracts a lot of money. They invest in what is doing well. Then suddenly when it stops doing well, they are sitting in underperforming stocks. The rock star fund becomes the laggard.
Today, our value fund manager is a rock star. But you can be certain that someone else will be on top in a few years time.
Our portfolio
Let’s look at our own portfolio, Extraordinary Companies, and see how we did against growth, quality and value investing.
Surprisingly, we did quite well. Since inception, we are ahead of all three styles:
Extraordinary companies: 98%
Growth: 62.5%
Quality: 61.4%
Value: 56.7%
This was a surprise to me. I had not seen this comparison until last night when I made this graph for the first time. Also, in the back of my mind, I thought that my ex-darling, Novo Nordisk, had destroyed our latest year of performance.
Anyway, yay for us. 🥳
Extraordinary Companies vs Growth, Value, Quality
How did we beat all these styles? I dunno… here’s what we did.
Lesson 1: Buy good companies - learned this from the quality guys.
Lesson 2: Don’t overpay - learned this from the value guys. This is one reason why our portfolio is not more highly traded. For the past few years, I’ve been finding valuations high.
Lesson 3: Cut your losers and move on. That’s why Novo and I broke up in December.
Lesson 4: Stick with what you know. I invest in accordance with the style that gels with my mindset. I can’t stick with it any other way.
Conclusion
Fund managers all talk their book. They always say their way is better than the other guy’s way, because they want you to buy their product.
As laypersons, when we we listen to them, we need to take what they say with a pinch of salt. Actually, make it a handful. Sometimes they talk nonsense.
We can take lessons from what they say, but must not be overly influenced. Stick to your style of investing, but adapt to the market. That’s what I try to do.
As for throwing shade. That’s a no-no. The market will humble you.
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