In the ultra-competitive fund industry, assets gravitate towards portfolio managers who can deliver long-term out performance. It’s often presumed that a superior set of investment skills is required – but what does it take to truly stand out from the crowd? Does success require a broad range of abilities or the mastery of just a few?

Main takeaways

Specialisation is key: Over 80% of successful managers excel in fewer than five specific skills, emphasising that depth rather than breadth is critical for achieving excellence in fund management
Diverse approaches to success: Investment professionals should recognise that there are multiple pathways to generating strong performance
Importance of unique skills: Highlighting and developing unique skills allows portfolio managers to stand out from their peers, providing a competitive edge that attracts investors and fund selectors.

Investors LOVE unique skills

Investors and fund selectors are often drawn to portfolio managers with distinct skill sets that set them apart from competitors. However, fund group presentations rarely highlight these qualities as they usually focus on appearing well-rounded and ticking all investment boxes. We believe this is a mistake. Not only is such an approach dull and repetitive, but it also fails to effectively showcase the strengths of individual managers. So, what is required to excel in the world of investment management, and how many skills does a manager realistically need to master?

How many skills are needed?

Example of portfolio ranking across different skills

We analysed 150 active portfolios based on 34 unique investment skills that demonstrate precision and risk control. These skill sets included:

Scale-down decision: Indicates expertise in recognising when to reduce exposure to selected strategies
Scale-up on turnaround stories: Demonstrates skill in identifying previously underperforming strategies with turnaround potential
Momentum-based scale-up: Shows ability to increase exposure to strategies with early positive trends, indicating potential for continued performance
Optimal sell timing: Shows strong judgment in fully exiting positions to maximise gains or minimise losses
Small weight allocation: Skill in strategically managing small-weight positions to balance portfolio diversification and potential impact.

Each portfolio was assessed in terms of their manager’s excellence within these 34 investment skill sets. We measured this on a scale of one to five.

One: unsatisfactory
Two: below expectation
Three: fair
Four: good
Five: outstanding

Our analysis revealed that managers only needed to be outstanding in a few areas. Out of the 34 skill sets, successful managers excelled in five or less.

Percentage of performing managers per number of outstanding skills

How to find that winning edge

It’s extremely rare to find managers who excel in multiple areas. Our analysis confirms that the most successful often demonstrate proficiency in a relative handful. However, recognising and embracing these specific strengths is key to setting an investment team apart and driving their success, as well as creating an attractive and resilient track record. It’s in the pursuit of a clearly defined investment edge that external managers will choose specific investment professionals with which to work. Each portfolio showcases a distinct mix of skill sets, and none of them excels across all 34. In fact, no portfolio scores ‘excellent’ in more than 10 skill sets.

Do fund managers need specific skills?

We examined whether excellence in portfolio management was dependent on a few skills that are commonly demonstrated by the most successful managers. By analysing the percentage of portfolios excelling in the same skills, our findings revealed that no single skill set is overwhelmingly essential for success. Among the skills, ‘scale-up on turnaround stories’ emerged as the most commonly seen, yet it was only actually found in 18% of successful managers. On average, an outstanding skill exists in just 10% of all successful strategies. Only 10% of top managers share the same outstanding skill. The reality is that success in portfolio management comes from a broad spectrum of competencies, rather than a narrow set of highly rated skills.

Embrace advanced tools

Given our findings, it’s clear that a more refined and objective tool is needed to assess and present investment skills. The process should begin by confronting the manager’s perception of what gives them a unique investment edge – and then highlighting those particular skills. By using appropriate tools to delve into the decision-making history, it’s possible to transform transaction data from managers into valuable insights that can validate their approach.

Remove the guesswork

SkillMetrics® eliminates the guesswork involved in skill assessment by adopting a quantitative and objective approach. This enables portfolio managers to accurately map their strengths, understand their unique strategies, and effectively communicate these advantages to clients. They can also present their skills in a compelling, clear and differentiated manner, moving away from those traditional, unengaging presentation methods.

Conclusion

In this report, we discovered:

Fund management groups don’t actively promote their managers’ specific skills
A successful manager only needs to be outstanding in a few areas
No single skill set is overwhelmingly essential to succeed
SkillMetrics® eliminates selection guesswork through its quantitative and objective approach.

About:
SkillMetrics® revolutionises investment expertise by providing advanced behavioural insights tailored for portfolio managers. Our cloud platform identifies strengths, weaknesses, and behavioural biases, leading to improved performance. CIOs/CEOs can coach teams to enhance results by focusing on the investment process. Fund Selectors benefit from skill monitoring and behavioural diversification.

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