The rise of boutique management firms put big name managers firmly at the forefront of investment marketing in the early and mid noughties, with New Star in particular using its bright young things to promote its funds, at least until it burned out in 2008. Investors and financial advisers bought eagerly into the cult of the fund manager, regardless of track record or expense.
But lower growth means the focus is again on fund costs, sparking fresh debate over the merits of active fund management over passive funds, such as trackers and exchange traded funds. This week saw the launch of Fundsmith, the low-cost investment proposition that has been compared with Ryanair by the man behind it, City veteran Terry Smith. He is promising investors access to a small batch of global equities at annual fees of 1 per cent and with costs kept down by low turnover. The emphasis on cost chimes with the current cynicism towards actively managed funds.
Research by passive investment experts Vanguard is evidence of the failure of too many actively managed UK equity and bond funds to produce long-term performance that isn't significantly eroded by costs. It (inevitably) found that funds that have been merged or liquidated performed 2.65 per cent below their benchmark, on average. When funds that haven't been closed or merged are taken into account, just one in four actively managed UK equity funds investing in large companies did better than the FTSE 350. A similar pattern was found among actively managed UK bond funds.
But while the passive investment case grows stronger, events at Gartmore this week have reminded us that the big name fund managers are as influential as ever. The news that the troubled group's star fund manager, Roger Guy, is to retire early next year helped spark a 20 per cent share price plunge on Monday, and investors have reacted by taking their money elsewhere.
Gartmore has had problems this year and Guy is not the first big name to depart, but the impact on a big, established fund firm will alarm investors. Many will speculate about the effect that similar events would have at other firms. Gartmore is not a one-man team, but neither was Fidelity when Anthony Bolton stepped down from his UK special situations fund a few years ago after a 20-year tenure that produced phenomenally consistent returns. That didn't stop investors panicking, however, with money draining out of the firm even before his successor was in the hot seat.
Bolton remains the biggest fund name of them all and his return earlier this year, with the launch of a China-focused investment trust, proved that investors are still willing to stake their money on individual reputations.The rate at which investors piled into what is a high-risk trust left little doubt they were following the man, not the proposition. Investors and advisers have always been vulnerable to big names, and a handful, such as Neil Woodford at Invesco Perpetual and Graeme French at M&G, justify their faith.
But while fund firms are still exposed to the whims of individual managers, investors must be more canny. That means being sceptical towards not just individual managers, but the very concept of active fund management. When returns are as low as they have been, investors are wise to base their decisions more on cost than reputation.