Third Link seeks to harness the brightest and best fund managers it can find, based on Chris Cuffe’s extensive industry knowledge and continuing active participation on multiple investment committees and investment companies.
When selecting fund managers, their method of managing money, the market sector they operate in, experience, funds under management, key personnel and past performance under different conditions are key drivers in deciding which fund managers to use. In addition, Chris looks for skilled, active fund managers.
But what is an active manager? We asked Chris to explain.
“There are not a lot of active fund managers in Australia. You can see this from their publicly available results or via research providers like Zenith Investment Partners. I value Zenith’s expertise and have sometimes added managers to the portfolio based on their analysis.
I’m looking for managers that can deliver before fee returns of 3-4% p.a. above the index over rolling five-year periods. In my view, there are not many that can consistently achieve so I’m always on the search.
In my experience, I would call out five characteristics that I look for in an active manager to be part of the Third Link Growth Fund.
1. A high conviction portfolio
Usually, proven active managers run high conviction portfolios, which means a smaller number of more concentrated stocks. Perhaps a couple of dozen securities or less. Essentially, these managers are taking bigger bets on fewer stocks. They are backing themselves.
2. Distinct from the index
I look for genuinely ‘independently’ constructed portfolios built with no regard to the index’s composition.
3. Smaller in size
Boutique managers with relatively small amounts of funds under management best suit active funds management. It enables these managers to move around the market much easier than large managers.
4. Experienced
You can’t beat some grey hair. I have trialled managers who are newer to the industry but keep coming back to managers with a track record over many years. A good manager usually has plenty of scar tissue!
5. Skin in the game
I have greater comfort if the manager has committed a significant amount of their personal wealth to the fund they are managing.”
