So you want to be a fund manager, sit on a pile of money, move it from here to there and from there to here. Wear a suit everyday to work, a silk tie and maybe have one of those heavy Swiss watches on your wrist. Sounds nice, right?
Well I have good news for you. Being an equity fund manager is the easiest job on the planet. You don’t even need a college degree, all you need is to read this article and you will be ready to manage millions and millions of other people’s money.
Ready?
Of course you are. Let’s get started.
The first thing you need to know about an equity fund is that they always have a benchmark. A benchmark is something the fund can compare its performance to. Whereas you compare yourself to the Jones family living down the road at number 47, an equity fund will compare itself to a suitable index.
For example, if you're managing a pharmaceutical equity fund it will compare its performance to an index of other pharmaceutical stocks and if it’s an equity fund investing in American shares, then it might compare itself to the S&P 500. I think you get the picture. The idea of the benchmark is that you get a comparison of performance for your fund, with the goal being that your fund should perform better than the index.
Equity Fund Secret
Now here’s the little dirty secret about equity funds, they are in fact tracker funds (just more expensive). This means they copy and therefore track the index that they compare themselves to. If you go through the holdings of any standard equity fund you will be surprised to find how right I am about this. For you, the budding equity fund manager, this is good news. It actually means that you don’t have to spend any time with all that boring laborious stuff like researching the companies your fund invests in, all you need to do is find out what percentage each particular stock has in the index and buy those in to your fund.
Bonuses
Okay, so you’ve found the index on Google, you’ve worked out the weightings and bought them into your fund. But hang on! This is finance. What about bonuses? You want one too, right?
Ah, but here we come to a bit of problem. To get a bonus you need to beat the index and unfortunately for you about 80% of equity funds underperform the index, so the chances are you won’t be making a bonus. But not to worry, you're on a basic monthly wage and normally that isn’t too bad. It should pay for an annual family visit to Disneyland Paris and a nice German family car.
You still want that bonus though don’t you?
Well okay, I’ll tell you what you can do to increase the chances of getting a bonus… without exerting too much time and effort. You have two options, both of which have the added plus that they will help to hide your fund’s true identity as a tracker fund.
First option is that if the company you work for has a brokerage with a research division all you need to do is buy a little extra of the equities that your company’s analysts have a “buy” rating for. No need to read the analysis, just check the recommendation. This’ll make your boss happy because you are using in house resources and it’ll make him really happy because the trades will be done through your own brokerage, who of course will charge your fund for the privilege, but not to worry it’s your clients who pay, and who cares, 99.9% of those people you’ll never have to meet face-to-face anyway. The problem with this strategy is that as analyst’s predictions go, they are about as reliable as a Trabant on a wet cold morning.
Your second option of getting a bonus is this. Ever heard of the Beta Coefficient? Don’t worry, it sounds scarier than it really is, it's actually the equity fund manager’s best friend, that’s why the equity fund managers call it by its first name Beta.
Beta is Greek and we all know how good the Greeks are at managing money, so you can probably already guess where this strategy is likely to lead you.
But I digress.
In all its simplicity Beta measures an individual stock’s volatility in relation to the rest of the market. For example (in theory) a Beta of one means a stock is likely to move with the market, a Beta of 1.5 means that the stock is likely to be 50% more volatile than the market. So what do you do with this information? You go overweight on the high Beta stocks in your benchmark index. (Overweight is equity fund manager jargon for “buy more of this than there is in the index”)
Look, you need to be realistic. You already know it’s unlikely that you’ll beat the index on account of the costs that your fund incurs. Add to this the fact that you're way too lazy to do any actual real work and the only reason you got this equity fund manager gig is because you read this blog post. This means your only chance of beating the index is if a) There is a bull market and b) You have a portfolio that has more risk than the average market.
Higher risk gives the chances of higher return, but you needn’t worry, after all, it’s not your money you’re taking the risks with is it?
Anyway, your tenure as an equity fund manager is destined to be short. Whereas the marketing material tells your investors that they should invest for the long term, you know, like 5 years minimum, what they fail to mention is that you my dear equity fund manager will only be in that job for about 18 months, which is the average tenure of an equity analyst in London. How do I know it’s 18 months? My mate Phil told me so at the pub over a pint (no joke, true story) and my mate Phil is a lot more reliable than Wikipedia, especially after he's poured a Windhoek beer or two down his gullet.
So there you have it. It really is as simple a job as that. Brush up your CV, get on Linkedin and start applying. A career as a job hopping equity fund manager awaits you!
(This article has been amended to correctly state Phil's favourite choice of beer. The earlier version incorrectly stated an inferior product)
Well I have good news for you. Being an equity fund manager is the easiest job on the planet. You don’t even need a college degree, all you need is to read this article and you will be ready to manage millions and millions of other people’s money.
Ready?
Of course you are. Let’s get started.
The first thing you need to know about an equity fund is that they always have a benchmark. A benchmark is something the fund can compare its performance to. Whereas you compare yourself to the Jones family living down the road at number 47, an equity fund will compare itself to a suitable index.
For example, if you're managing a pharmaceutical equity fund it will compare its performance to an index of other pharmaceutical stocks and if it’s an equity fund investing in American shares, then it might compare itself to the S&P 500. I think you get the picture. The idea of the benchmark is that you get a comparison of performance for your fund, with the goal being that your fund should perform better than the index.
Equity Fund Secret
Now here’s the little dirty secret about equity funds, they are in fact tracker funds (just more expensive). This means they copy and therefore track the index that they compare themselves to. If you go through the holdings of any standard equity fund you will be surprised to find how right I am about this. For you, the budding equity fund manager, this is good news. It actually means that you don’t have to spend any time with all that boring laborious stuff like researching the companies your fund invests in, all you need to do is find out what percentage each particular stock has in the index and buy those in to your fund.
Bonuses
Okay, so you’ve found the index on Google, you’ve worked out the weightings and bought them into your fund. But hang on! This is finance. What about bonuses? You want one too, right?
Ah, but here we come to a bit of problem. To get a bonus you need to beat the index and unfortunately for you about 80% of equity funds underperform the index, so the chances are you won’t be making a bonus. But not to worry, you're on a basic monthly wage and normally that isn’t too bad. It should pay for an annual family visit to Disneyland Paris and a nice German family car.
You still want that bonus though don’t you?
Well okay, I’ll tell you what you can do to increase the chances of getting a bonus… without exerting too much time and effort. You have two options, both of which have the added plus that they will help to hide your fund’s true identity as a tracker fund.
First option is that if the company you work for has a brokerage with a research division all you need to do is buy a little extra of the equities that your company’s analysts have a “buy” rating for. No need to read the analysis, just check the recommendation. This’ll make your boss happy because you are using in house resources and it’ll make him really happy because the trades will be done through your own brokerage, who of course will charge your fund for the privilege, but not to worry it’s your clients who pay, and who cares, 99.9% of those people you’ll never have to meet face-to-face anyway. The problem with this strategy is that as analyst’s predictions go, they are about as reliable as a Trabant on a wet cold morning.
Your second option of getting a bonus is this. Ever heard of the Beta Coefficient? Don’t worry, it sounds scarier than it really is, it's actually the equity fund manager’s best friend, that’s why the equity fund managers call it by its first name Beta.
Beta is Greek and we all know how good the Greeks are at managing money, so you can probably already guess where this strategy is likely to lead you.
But I digress.
In all its simplicity Beta measures an individual stock’s volatility in relation to the rest of the market. For example (in theory) a Beta of one means a stock is likely to move with the market, a Beta of 1.5 means that the stock is likely to be 50% more volatile than the market. So what do you do with this information? You go overweight on the high Beta stocks in your benchmark index. (Overweight is equity fund manager jargon for “buy more of this than there is in the index”)
Look, you need to be realistic. You already know it’s unlikely that you’ll beat the index on account of the costs that your fund incurs. Add to this the fact that you're way too lazy to do any actual real work and the only reason you got this equity fund manager gig is because you read this blog post. This means your only chance of beating the index is if a) There is a bull market and b) You have a portfolio that has more risk than the average market.
Higher risk gives the chances of higher return, but you needn’t worry, after all, it’s not your money you’re taking the risks with is it?
Anyway, your tenure as an equity fund manager is destined to be short. Whereas the marketing material tells your investors that they should invest for the long term, you know, like 5 years minimum, what they fail to mention is that you my dear equity fund manager will only be in that job for about 18 months, which is the average tenure of an equity analyst in London. How do I know it’s 18 months? My mate Phil told me so at the pub over a pint (no joke, true story) and my mate Phil is a lot more reliable than Wikipedia, especially after he's poured a Windhoek beer or two down his gullet.
So there you have it. It really is as simple a job as that. Brush up your CV, get on Linkedin and start applying. A career as a job hopping equity fund manager awaits you!
(This article has been amended to correctly state Phil's favourite choice of beer. The earlier version incorrectly stated an inferior product)
Wealth Management Parody from SCM on Vimeo.
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