Traditional investment categories out of whack

Investors and financial planners are placing too much importance on traditional investment styles such as ‘core’ and ‘value’ when choosing fund managers to invest in, according to the chief investment officer of Wingate Asset Management, Chad Padowitz.

Padowitz said investors should look at the individual characteristics of the way a fund manager invested his assets, and whether his fund differed from the market index, rather than focusing on ‘core’, ‘value’ or ‘growth’ fund managers.

“I know that if you have a low tracking error objective, which many funds do... then you’re going to [perform] very close to the benchmark, whether you call yourself a core or value [fund manager],” Padowitz said.

“A low tracking error is when no one wants to move too far away from the index. And of course, if no one wants to move too far away from the index, then you’re going to be very similar to the other fund managers,” he said.

Padowitz said peer pressure and the fear of risking their careers pushed many fund managers to have low tracking error objectives, even if they claimed otherwise.

“At the end of the day, all you’re doing is buying small stakes in companies. And very few companies would say ‘we’re a growth company’, ‘we’re a value company’ or ‘we’re a core company’. They would just say: ‘This is what we do and this is what we sell’,” he said.

“It doesn’t make sense that the company is not growth, value or core in their [own] mind, but they can become that in [an investor’s mind].”

“Most great investors place no value on concepts like that,” Padowitz said.

Wingate positioned themselves as a value-based manager, but that was only for identifying themselves among investors, he added.