There are many qualities that make up a good fund manager. These include passion, experience, willingness to go against the crowd, knowing your edge and understanding whose money it is you are looking after.
These are all prevalent in the manager of the M&G Global Basics fund, Graham French. Nowadays this fund and indeed French are hardly a well kept secret.
He currently manages assets in excess of £11 billion for investors around the world. However it is worth reflecting on these attributes as they help explain the success he and, more importantly, the unitholders in his fund have enjoyed to date.
French has been at M&G since 1989, cutting his teeth by managing a precious metals and mining fund for Vanguard and the M&G Managed Growth fund, a fettered fund of M&G funds.
What better way of seeing others in action than from close quarters and being able to observe what works and what doesn’t? He therefore has a huge amount of experience not only in the different ways and styles of investing, but also of the psyche of the market and the basics of the current commodity-led supercycle from close quarters.
He used this experience to great effect by launching the M&G Global Basics fund in November 2000, when the rest of the world was obsessed with the boom (or rather the impending bust) in technology, media and telecoms. One of the qualities Anthony Bolton observed in good fund managers was what he referred to as "the seeing eye", or the ability to look through the plethora of information and noise abundant in today’s markets to pick out what is important.
Well, how about going against the grain to identify the next supercycle and a successful way in which to invest in it?
The premise of the fund is to benefit from long-term investment in the building blocks of the global economy. These are companies that operate in either primary industries, that is, those involved in the extraction of raw materials, or secondary industries, those involved in the conversion of raw materials into products and services.
One of the fund’s tenets and an overriding philosophy is it avoids anything that emerging markets make, which over time will continue to see their prices fall, including commoditised products; while investing in products that emerging markets need, which should continue to see the prices go up as they benefit from the growth of consumer demand in those markets.
It is neither solely a resources nor an emerging market fund. A key feature is the flexibility the fund has to invest in companies well positioned along the "curve of economic development", as he describes it. Overall the fund has a bias to global companies that are based in developed markets, asset rich, transparent, well managed and which he believes can grow independently of the economic cycle.
He also eschews two other traits of the fund management industry, namely benchmarks and short-termism. The result has been performance in the past 10 years that has been excellent, bar a period in 2008 when the fund experienced a significant decline in NAV. Importantly though, the manager maintained his approach, did not significantly alter the portfolio and consequently benefited from a very strong recovery in 2009 and 2010, recovering the losses sustained in 2008.
Since launch to the end of April, the fund has returned 261% (equivalent to 13% per year) according to Morningstar data. The FTSE World index has managed a measly 33% over the same period.
French has shown that he is a true visionary in the world of fund management. Furthermore he provides access for the everyday investor, as he says the "moms and pops, taxi drivers and teachers", in whose interests he acts.
M&G must be applauded for providing him with the environment and support to adopt his approach and the benefits it has brought to investors. Happily, he committed to running his fund for 20 years and so he is only half way there.
Read more about Graham French and Morningstar's Manager of the Year Awards here.
This article first appeared in Investment Adviser.
