Ventre says First State Asia Pacific Leaders is one such quality fund that will find it harder and harder to outperform due to the lack of flexibility resulting from mass inflows. Instead, he is turning his attention to Schroders’ Robin Parbrook for exposure to the region. Although Ventre is particularly concerned about emerging markets, he says that the issue of size can be seen across the IMA universe.
"The big question that we face over the next 10 to 15 years is that we have developed a problem within our industry," he said.
"There are huge amounts of inflows into just a couple of managers or asset classes. This is giving these managers, who often have a very strong record and lots of capability, a significant problem."
"Sailing a little boat to Olympic glory is very different to steering a super-tanker. You wouldn’t give Ben Ainsley the job of steering a big cargo ship. He could do it, but he wouldn’t be able to win Olympic gold like that."
Ventre says this is an issue as fund managers who are seeing significant inflows are unable to make high-conviction calls within their portfolios.
"There is definitely a problem within our industry of creating giant funds," he explained. "The reason for this is that trading asset flows is a lot more expensive and a lot more difficult than trading your own views."
"If I was a single-stock manager and I decided to switch from BP to Shell, I can take into account the transaction costs of doing so when making my decision. Ultimately, the stocks are very similar, so in order to justify the transaction I need to have a high-conviction view that one is better than the other."
"But when I get big flows into my fund, I really have no choice. I have to go out into the market and buy shares to invest that cash."
"These kinds of market-based transactions costs are much more pernicious, so it is our view that giant funds are likely to underperform expectations through time," he added.
Because of his views on larger funds attracting the most inflows, he has made a number of changes across his fund range.
The biggest one has been his decision to switch out of the £7.8bn First State Asia Pacific Leaders fund, run by FE Alpha Managers Angus Tulloch and Alistair Thompson, and into a Schroder Asia Pacific equity mandate managed by FE Alpha Manager Robin Parbrook and King Fui Lee.
"They are managers with very similar styles, with a bias towards quality and valuations, and they have large analyst teams," he said. "We just feel that the Schroder product is a little more nimble as they run less money and they will be able to manage capacity issues better."
Parbrook and Lee have managed the five crown-rated $2.4bn Schroder ISF Asian Total Return fund since its launch in July 2008. The fund sits in the IMA Specialist sector.
According to FE Analytics, the fund has returned 131.13 per cent since launch, more than doubling the returns of its benchmark – the MSCI Asia Pacific ex Japan index – in the process. The fund has also outperformed the First State Asia Pacific Leaders fund over this time and would have been a top-quartile performer in the IMA Asia Pacific ex Japan sector.
Performance of funds vs sector and index over 5yrs
Source: FE Analytics
Schroder ISF Asian Total Return has an ongoing charges figure (OCF) of 1.99 per cent and requires a minimum investment of £1,000.
Ventre has also recently added a smaller bond fund to his portfolios.
"One change has been the addition of the Mirabaud Convertible Bonds Europe fund, run by a chap called Renaud Martin," he said.
"We added it precisely because it is a small and nimble fund and can trade effectively in what is actually a very small asset class, playing into my theme that small is better than big," he added.
The €197.7m Mirabaud Convertible Bonds Europe fund has returned 16.79 per cent since its launch in October 2011.
A convertible bond combines features of both debt and equity. It usually pays a fixed level of income until redemption, like a bond. However, at that point investors can either receive the initial investment back or convert that capital into equities at a pre-arranged rate.
Mirabaud European Convertible Bond is an FCA Regulated offshore SICAV. It has a total expense ratio (TER) of 1.77 per cent.
Despite his worries about larger funds, Ventre himself runs more than £1.8bn worth of assets throughout his funds. Nevertheless, he says this is not an issue at the moment because of his management style.
"It would be a concern at £18bn, I wouldn’t say it is a concern at £1.8bn," he said.
"Ultimately, you have to remember that across that £1.8bn, we may own 30 managers, roughly. That would mean the typical allocation is around £60m to each manager. This is the type of allocation to a nimble fund manager who runs less than £1bn or £2bn, with ease," he added.
Ventre has managed the Old Mutual Spectrum range since April 2008. Over five years he has returned 30.81 per cent, slightly lagging his peer group composite, which is up 31.24 per cent.
Performance of manager vs peers over 5yrs
Source: FE Analytics
The Old Mutual Spectrum range is a collection of risk-targeted funds. They tend to have an OCF of around 1.8 per cent, and are available for a minimum investment of £100,000.
