An independent perspective on Barron's Best Fund Families List
Every February, I look forward to the release of Barron’s Best Fund Families list. I’m always interested in where the managers we use in Frontier’s strategies rank. However, this year, I was particularly curious. How did managers perform in a year where U.S. equities had their worst one-year returns since 2008 and bonds experienced their worst year ever?
Knowing how Barron’s rankings work – they look at the one-year performance of each actively managed fund versus peers – I wasn’t surprised. After all, 2022 was all about who lost less.
Some skeptics may wonder if it was just luck for those managers who topped the list. For the most part, I’d argue no. It’s not easy to lose less. Especially in a year where there was no shortage of drama – a year in which pessimism swelled, uncertainty abounded, inflation ballooned, and a war in Ukraine raged…you get my point. You experienced it.
However, one-year track records aren’t a crystal ball to predict the future. Just like investment styles, managers go in and out of favor. Managers bouncing up and down Barron’s list from year to year are a testament to this.
The moral of the story is that quantitative evidence is not enough. You can’t just pay attention to the numbers. We believe a deep understanding of the intangible skills of a fund manager is also required.
One must understand the following:
- People: Who are the people behind the fund? What makes them qualified to manage money? How long have they managed money? What tools do they have at their disposal?
- Philosophy: What are the manager’s beliefs and investment philosophy? Can they be translated into alpha? What type of market environment will the manager do well? And does their approach match your goals for your clients?
- Process: Is there a repeatable and systematic process behind their investment philosophy? How do they select securities and/or funds? What is their sell discipline? How do they analyze risk?
- Performance: How did the manager create value? Was the performance lucky or skillful? Are they likely to achieve that performance again in the future?
Unfortunately, understanding these qualitative aspects of a manager takes extensive research, resources, and time that many advisors do not have.
The advisors who accept that they can’t do it alone outsource – typically to a model provider. And here is where I must raise the red flag.
You’re probably wondering why. Isn’t Frontier a model provider?
Let’s go back to Barron’s list. Most of our model provider competitors on the list have one thing in common: they offer models made from their proprietary funds. As an advisor, if your intent is to outsource to a model provider who will dive into the ins and outs of a fund and do the appropriate due diligence – yet the one you outsource to is biased and constrained to the offerings of their parent company, are you taking the right approach? Have you met your fiduciary duty?
At Frontier, we take pride in our independent and unbiased approach. We have no proprietary funds to push. All we care about is making the best choices for your investors – just like you.
We can research and select from the 50 largest fund families covered on Barron’s list – and those not on the list, including the smaller specialty funds that are typically only accessible to institutional investors. We choose not just from what we’ve identified as the best fund companies but the best funds within those fund families. We value the diversity of thought and the depth of talent we can access by drawing from the entire universe of funds and believe that operating our own funds would represent a conflict of interest.
This year, I see some of the managers we’ve selected in our strategies on Barron’s list. Again, I’m not surprised they’re on there. However, next year, they may not be in our strategies. We do not develop emotional attachments to any managers and are not reluctant to remove one from the list. Like us, I encourage you to not follow the predictable path. Be free from the groupthink that so often dominates the finance industry. Break away. We’re here to help.
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Past performance is no guarantee of future results. The investments discussed herein may be unsuitable for investors depending on their specific investment objectives and financial position. Investors should independently evaluate each investment discussed in the context of their own objectives, risk profile and circumstances. There can be no assurance that any Frontier strategy or investment will achieve its objectives or avoid substantial losses.
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