The firm's funds are strong performers over the long term and use a conservative strategy. They tend to outperform in down markets and participate in up markets.
During the 2012-2013 rally, its flagship fund has surprisingly outperformed the market. Hundreds of millions of dollars have come in from performance alone.
The CEO has two arguments against marketing. First, he believes they are already growing too fast and shouldn't want to grow even faster. He is also concerned that new investors will be attracted to the performance and when the performance returns to earth, those investors will also flee.
The VP and others there believe now is the time to do marketing, because they may not have this momentum again.
She asked me for my opinion.
I believe her firm should do marketing but for a different reason.
Investors who buy for performance leave for performance. When investors leave, portfolio managers are forced to sell securities even though the disciplined and repeatable process suggests otherwise. Sophisticated investors will use it as an excuse to sell en masse.
But when investors buy because of an understanding of the story, such as the asset class, strategy, experienced manager, good decisions made, and likely investment outcome, their expectations are in line with expected outcomes and they will stay invested longer.
"Sticky" investors are the ideal investors. So I encouraged her to develop a marketing program - focusing on telling the right story to the right audience on a regular basis - to diversify her client base.
I also reminded her not to forget about her current investors. To convert a performance chaser to a fund loyalist, regular communications is key. She should put the performance in perspective and start shaping expectations. The story wasn't outperformance before. It shouldn't be now.
Investors who buy for performance leave for performance. When investors leave, portfolio managers are forced to sell securities even though the disciplined and repeatable process suggests otherwise. Sophisticated investors will use it as an excuse to sell en masse.
But when investors buy because of an understanding of the story, such as the asset class, strategy, experienced manager, good decisions made, and likely investment outcome, their expectations are in line with expected outcomes and they will stay invested longer.
"Sticky" investors are the ideal investors. So I encouraged her to develop a marketing program - focusing on telling the right story to the right audience on a regular basis - to diversify her client base.
I also reminded her not to forget about her current investors. To convert a performance chaser to a fund loyalist, regular communications is key. She should put the performance in perspective and start shaping expectations. The story wasn't outperformance before. It shouldn't be now.
She could work with media, publish white papers, write blogs and attend investor conferences.
The added benefit of working with the media is building a relationship with reporters. If a reporter believes in your story, he will say nice things about you and your funds for years to come, even during underperforming periods, helping investors to be more "sticky."
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