Good Investment Performance from BTT
One of the businesses we follow in The Montgomery Fund is BT Investment Management (ASX: BTT). Being fund managers ourselves, we like to think we have some understanding of this type of business.
The Montgomery Fund invested in BTT early this year after noticing that many of BTT’s funds delivered very good investment performance in the period to 31 December, and were on track to achieve solid 3 and 5 year outperformance numbers. With the results for the half year to 31 March now released to the market, we have confirmation of that performance.
At the end of the day, investment returns are what a fund manager sells, and demonstrating good returns over a meaningful timeframe is central to the success of the business. As well as generating performance fees in the short term, good performance stimulates fund inflows which generate value in future periods.
An important feature in evaluating investment performance is consistency. Ironically, the fund manager that tops the league tables in any one year is unlikely to be the one you want. Getting to the top of the league tables in a single year usually entails taking big risks and having them come off. This approach usually ends in tears sooner or later.
BTT manages a large number of different funds, and the goal is to have a large percentage of their FUM in the first and second quartile over an extended period, which they have successfully done. For the three years to end March, 97 per cent of BTT’s considerable FUM had achieved investment returns in excess of benchmarks. This is a pre-fee figure, which is not the way investors look at performance, but nonetheless is an impressive achievement.
The economics of successful fund management businesses also tend to be attractive. There is very little capital investment required, and costs tend to be quite variable, as staff costs rise and fall with the profitability of the business.
Following a strong run in the share price it is hard to describe BTT as cheap, but it certainly fits the bill as a high quality business worth watching.
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
