Relative performance was, is and always will be key in this endeavour. It is obviously the clearest and most relevant (if not the ONLY) benchmark by which to measure active management. However, as we saw in the aftermath of the EU referendum in June 2016, immediate relative performance during the early weeks of Covid-19 will be largely down to luck. How funds were positioned going into the downturn that very, very few people could have anticipated.
Once the crisis was upon us, however, there are no excuses – all managers have the same chance to demonstrate their flair in such circumstances. How fund selectors and investors react to funds that chalked up either relative outperformance or underperformance in the immediacy of the market fall will be interesting. We would argue that insofar as past performance rarely is predictive of the future, it will be certainly the case in those first few days which could nevertheless move funds around by more than a quartile or two on one or three or possible five year numbers.
We have been surprised by the limited activity of our fund managers during this period. Perhaps we should not have been. There has been a remarkable consistency of approach regardless of style or market segment. Fund managers have moved quickly to identify areas of immediate weakness and have looked to reduce this risk, although in many instances markets have moved ahead of them to more than factor in this risk.
As the immediate crisis passes or it becomes clearer which companies will survive 2020 and which won’t, their focus seems rightly to us to look to which companies will emerge stronger from this crisis and where true value lies. The world has changed, but we probably don’t know yet where, how or by how much. Acting too fast runs the risk of injudicious actions. In nearly all instances we acknowledge that fund managers will have time to get these decisions right, which might after all be multi, multi year outperforming trades.