Genuine passion for investing, a strong dislike for losing money, and – in some cases – musical talent are among some of the human traits often seen in great fund managers, according to the team behind the highly respected Jupiter Merlin Portfolios. 
The issue came up in the team’s latest update, in which its managers also argued why they believe Bitcoin is a classic investment mania and highlighted why they recently added a new fund for Asian equity exposure.
The question of how to spot a talented fund manager is one that many investors wrestle with and the Jupiter Merlin team – which is made up of the FE Alpha Manager duo of Algy Smith-Maxwell and John Chatfeild-Roberts (pictured) along with Amanda Sillars and David Lewis – has spent more time that most mulling over this question.
In a recent update, Sillars noted that the members of the team are “passionate believers” in active management but acknowledged that consistent outperformance depends on backing the best, not the average, active fund managers.
Some of the qualities that the Merlin team looks for in fund managers include “outstanding” individuals, a resilient and repeatable process, a cool temperament, an effective team structure and the “will to win”.
Performance of fund vs sector over 20yrs
Source: FE Analytics
This approach appears to have worked over the long run. The £2.8bn Jupiter Merlin Income Portfolio, which is the largest offering in the team’s range, has generated a 214.35 per cent total return over the past 20 years, ranking it in second place in the competitive IA Mixed Investment 20-60% Shares sector.
When asked about the more human traits that the team often sees in the industry’s best fund managers, Smith-Maxwell said the subject fascinates him because “it’s all about looking inside people’s heads”.
“What we as a team are always searching for is the fund manager who manages money because they are passionate about investing,” he explained. “They are not people who are trying to get rich quickly themselves; it’s purely that they are passionate about the complications and challenges of investing people’s capital in a risk-aware way.
“There’s a second characteristic that these individuals have: they tend to be very averse to losing money. They don’t like losing money. I think that always gives us, as a team, a great comfort as there’s a valuation net for us all to be reassured by when markets get difficult.
“Finally, these fund managers are very competitive people but more so with themselves. Occasionally we find they are very good chess players, bridge player and, fitting in with their mathematical minds, quite musical.”
FE Trustnet recently covered this subject by asking a selection of fund pickers on what personality traits they are looking for in managers. Among the qualities highlighted in this article included a degree of eccentricity, patience and self-awareness.
In the Jupiter Merlin update, Smith-Maxwell also discussed a manager that has ticked all the boxes for the team and won a place in its portfolios. William Lam's £2.3bn Invesco Perpetual Asian fund was recently added to Jupiter Merlin Growth and Jupiter Merlin Worldwide, sitting alongside Stewart Investors Asia Pacific Leaders and Findlay Park Latin American in the funds’ emerging market exposure.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The five FE Crown-rated fund uses a pragmatic, valuation-oriented approach which combines top-down macro analysis with bottom-up stock selection. Top holdings include Samsung Electronics, JD.com and Baidu while the portfolio’s biggest sector allocations are to information technology, financials and consumer discretionary.
Smith-Maxwell said: “We really liked William Lam, we just thought he was a first-class investor who learnt his skills at one of the premium investment houses. He has slightly growthier investment strategy that we think combines beautifully with the Stewart Investors Asian fund that we own.
“We do realise that technology is a very important part of emerging markets and there are some very interesting companies in this space that Lam has exposure to. They aren’t all the big top-10 stocks that are pregnated in the indices, these are slightly smaller companies. His GARP [growth-at-a-reasonable-price] investment approach, when combined with an ability to be nimble enough and get some of these businesses at an earlier stage, is going to be very beneficial to investors.”
The update also saw John Chatfeild-Roberts, head of strategy within the Jupiter Independent Funds Team, which manages the Jupiter Merlin Portfolios, explain why he believes Bitcoin is an example of investment mania that he is steering clear of.
The cryptocurrency was constantly in the headlines in 2017 following a rapid rise that saw Bitcoin surge more than 1,000 per cent after starting the year under $1,000 and climbing to close to $20,000. However, the journey was marked by extreme volatility and sold off its highs in spectacular fashion – it is currently priced at around $8,600.
“I’ve been reasonably outspoken about this: I think blockchain – the underlying technology – may well be an important technology for the future. Bitcoin is fascinating in one aspect, which is that you have a relatively limited amount of something that is potentially valuable, just like gold,” Chatfeild-Roberts said.
Performance of Bitcoin since 1 Jan 2017
Source: Coindesk
“The problem is that not only has Bitcoin had a Bitcoin fork – so it isn’t as limited as it once was – but if you look at Wikipedia there are over 1,000 other competing cryptocurrencies out there, which seems to me like there is almost an infinite amount of this stuff. I also think that governments, in the form of either taxation or regulation, will bear down on these things.
“I’m not allowed to give personal financial advice, but I have absolutely no Bitcoin investments. I never have and I never will: I think this is definitely a mania.”