Welcome to the first of Questor’s new Monday columns, in which our share selections are inspired by where the world’s best-performing fund managers are investing their clients’ cash.
Regular readers may well be thinking: what’s new? After all, Questor has for the past seven years examined the buys and sells of prominent professional investors under its Follow the Money format.
Indeed, this new column is inspired by the same simple idea, of tracking the investment decisions of those with a record of getting more of them right than wrong. Armed with unique data on the performance of thousands of fund managers around the world, the financial publisher Citywire has taken that idea a few steps further.
Monday’s Questor will showcase the shares from across the world (though still accessible to readers) that are most popular with a select few fund managers who have demonstrated a consistent ability to significantly outperform the markets they invest in.
We will be drawing on ratings produced by Citywire that highlight exactly this. The Citywire Elite Companies website, which I edit, rates companies on the basis of their backing by the world’s best-performing fund managers.
Here’s how it works. Citywire trawls through the performance of more than 10,000 equity fund managers it tracks around the world. Using stringent criteria that take account of how much they outperform their market, how consistently they do so and how much risk they take, the very best are selected. Fewer than 3pc of the fund managers tracked – or, more precisely, 290 individuals – currently pass this test.
Only the companies owned by these top-performing fund managers qualify for a Citywire Elite Companies rating. That equates to around 10pc of the more than 56,000 listed companies across the world: 5,480 shares at the last count, spread across 72 countries and operating in 55 industries.
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Those companies, all backed by the world’s best-performing investors, are rated, from the highest AAA rating to AA, A and +, on the basis of the size of these investors’ bets on their shares. Companies move up and down – and into and out of – the ratings each month as these top fund managers buy and sell shares.
The idea behind the ratings, which have been approved by independent analysts AKG, is simple: to highlight top-performing fund managers’ biggest stock market bets.
There’s weighty academic evidence that following these bets can be profitable for investors. Harvard Business School lecturer Randy Cohen, who has studied the performance of fund managers’ “best ideas” for more than 15 years, has argued that when professional investors beat the market, it tends to be down to just three to five of their highest conviction positions.
That is where this column will focus: on companies with the highest Citywire Elite Companies rating, which top-performing fund managers are betting biggest on.
Each stock highlighted by the ratings will be subjected to the normal Questor scrutiny. How much of its profits can it deliver in hard cash? How much debt does it carry on its balance sheet? And how expensive are its shares?
Ultimately, the aim is the same as with every Questor column: to highlight great investment opportunities. By giving you the inside track on where the world’s best fund managers are putting their clients’ money, we hope to deliver just that.
Daniel Grote is editor of Citywire Elite Companies
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