Flying in the face of data: What active investment management has to sell

I’ll admit it, I’ve been obsessed with investing for a long time.

My introduction to the stock market came through individual stocks, and I got lucky right off the bat. Twice in the late 1970s, I wrote an annual report for a tech company on Long Island that paid me in shares of their stock rather than cash, and the shares I received for $3 and $4 in successive years were worth $21 when the company was acquired by National Cash Register in 1980. Similarly, I bought Wang Labs when I went to work on the account at Hill Holliday in 1978, and the shares rose, if memory serves, from $6 to $42 before I unloaded them

Despite my early success (which, unfortunately, didn’t involve substantial money), I eventually came to believe that mutual funds made good sense for me, and I began to invest in them.

There were various reasons why I liked them:

  • I had confidence in their internal research capabilities, which are obviously quite extensive.
  • I valued the ready access they have to the senior management of publicly traded companies, which meant they could put questions directly to business leaders and (presumably) get straight answers.
  • Most of all, I believed that their best fund managers would have investment abilities that removed luck from the equation and made investing a matter of skill, judgment and analytics.

The question is, if I were making the same decisions today, would I be justified in putting my trust in these “active managers?”

The edge goes to the benchmarks

According to “The Dying Business of Picking Stocks,“ a recent article in The Wall Street Journal that attracted a lot of attention, there’s a very strong likelihood that the answer to the question is “no”. That’s because over the last 25 years, only about one in five active managers has outperformed the Vanguard 500 Index Fund, a proxy for the U.S. stock market that invests in the 500 stocks of the S&P 500. That’s a pretty puny number. And it gets worse more recently. In the last year an even smaller percentage of active managers – only 15.4% – have outperformed the Vanguard 500.

You’d assume this kind of performance would have consequences for active managers, and it has.

“Over the [last] three years,” the WSJ article reported, “investors added nearly $1.3 trillion to passive mutual funds and their brethren—passive exchange-traded funds—while draining more than a quarter trillion from active funds.”

How can actively managed funds be marketed?

As a marketer, I’ve done a lot of thinking about how companies whose fundamental identity is associated with active management can effectively market themselves in the face of data that would seem to contradict blanket claims they might make about superior investment management, especially when you also consider that ETFs often charge lower management fees

Here’s what I would recommend to them.

1. Focus on individual funds with dynamic managers who are or have put up good numbers

We’re all familiar with the way too many fund families go about marketing their funds in print. What I’m talking about are ads that show the names and trading symbols of a bunch of funds with Morningstar stars hovering above them and a glib headline that goes something like “The stars have aligned for us.”

This kind of marketing communications is unoriginal, undifferentiating and uninteresting.

What you don’t see is marketing that brings the managers to life. I went to a dinner hosted by Fidelity a few years ago with Rajiv Kaul, manager of their Select Biotech Fund, and I was overwhelmed by his intelligence, the depth of his understanding of diseases and the role he plays and the prominence he enjoys in the biotech industry.

I know, biotech is getting seriously clobbered this year, and yeah, Rajiv is lagging his index by several percentage points. But I believe there’s a story to be told by and about managers like him that would resonate with investors like me.

Fidelity tries to do some of this on its Asset Management website, where they publicly declare that “The goal [is to] beat the benchmark.” You can judge for yourself whether you think they’re going far enough to engage advisors and investors.

2. Deliver a deep dive on the investment methodology

Investing isn’t easy, and investors recognize it. We know it typically involves the participation and contributions of a lot of smart people, that deep analysis is required to build and manage a portfolio and that markets themselves are complex and dynamic (i.e., constantly in flux).

As an investor, I want the fund company to explain their investment process to me and what they’re doing to capture alpha on my behalf. Treat me like an intelligent consumer and provide specific details.

Hey, my money is at stake. This stuff matters to me, and I’m certainly not unusual.

3. It’s fine to be truthful

I’ve always thought it was interesting that when you read a quarterly report for a fund, you can find out not only which positions in the portfolio contributed to success, but which ones detracted from it. I find this revealing – i.e., the transparency works.

My recommendation to fund companies – in all communications, be forthright. Let investors inside the kimono.

4. Emphasize the brand

I have no doubt that all fund managers want to produce great numbers for their investors, but I also believe there are companies that make it a cultural mandate. I have this feeling, for example, about Ron Baron’s fund company and about Donald Yacktman’s (although the Yacktman website could certainly use improvement). Why larger fund companies don’t bring this same emphasis to their communications is another thing that leaves me scratching my head.

The bottom line is this. If I’m going to continue to entrust money to professional managers, I need to know they’re living, breathing people with a passion for what they do. I believe that difference – between the qualitative and the quantitative – is the best defense against strictly judging things by the numbers.

(If you want to see a company that I think is doing many of these things well, visit the MFS website and check out the content they’re making available to individual investors.)

AFTERWORD: I finished this blog on a Saturday morning. That afternoon, my copy of Barron’s arrived in my driveway with these words on the cover:

MAN BEATS MACHINE. Forget those stories saying cheap index funds are unbeatable. Since July 1, a full 60% of managers at active mutual funds have outperformed the market. Expect to see more of that.”

Well, son of a bitch. While the article acknowledges that “just 6% of active growth funds are outpacing the market year to do date,” it argues that conditions have turned in stockpickers’ favor. And it suggests that “fund investors have another step to take; they must choose the managers they consider poised to outperform.”

All the more reason, in my opinion, for fund companies to get out and tell their story.





Sustainable investing goes mainstream. And we all benefit.

Nearly 10 years ago, 360 was chosen by Pax World, a mutual fund company that was instrumental in the emergence of socially responsible investing in the 1970’s, to help them draw attention to how they’d rather be known – as a skilled practitioner of a little used category name at the time, “sustainable investing.”

Back then, no one was a more outspoken champion of the practice than Joe Keefe, Pax World’s President, CEO and charismatic leader. At an annual gathering of the SRI clan at a trade conference that was then known as SRI in the Rockies, Joe chastised his counterparts for drawing attention to what they didn’t invest in – e.g., tobacco, liquor and firearms – rather than what they did invest in – companies that meet strict environmental, social and governance (ESG) standards. He believed the future of progressive asset managers like Pax World lay in their ability to recast their approach so that it was seen as contributing positively to investment performance, and he was outspoken about it.

360 partner Nick de Sherbinin wrote about this in a blog three years ago, From SRI to SI: changing a mutual fund category by losing a letter.

One of the first things we created for Pax World was an ad aimed at financial advisors with the headline, “Who’s going to bring up sustainable investing first, you or your clients?” I think it’s fair to say that “sustainable investing” hadn’t appeared in many ads before that one ran. For years after that, everything we built for Pax – advertising, collateral, sales aids, webinar decks, emails, etc – sought to convey why sustainable investing was, as Joe liked to say, “a better, smarter way to invest.”

Fast forward to this week’s Barron’s (10/10/16), which in its quarterly Mutual Fund section features its first annual performance ranking of the “Best 200 Sustainable Funds.”

What’s surprising to me is how few of the 200 large caps funds on the list are run by companies, like Pax World, that explicitly claim to be sustainable managers. In fact, just 19, or fewer than 10%, qualify as that (and none, by the way, are Pax World funds). Most of the rest are managed by companies you won’t find on the website of US SIF, the Forum for Sustainable and Responsible Investing.

Recognize any of these names – Fidelity, American Funds, Vanguard, T. Rowe Price, Franklin, Pioneer, Columbia, Dodge & Cox, MFS, JP Morgan, John Hancock, Invesco, BlackRock, Wells Fargo, Goldman Sachs, Natixis and Nationwide? Of course you do. What investor doesn’t? Those are the kinds of names that appear on the Barron’s list.

What does it mean?

Well, as Barron’s writes, “What is perhaps most interesting is how mainstream sustainable investing is becoming – so much so that many funds that don’t wear that label still embrace the practice. Major fund purveyors…are already using environmental, social, and governance factors in creating their portfolios.”

This is good news for both investors and all of us generally. For investors, it means we now have access to a larger roster of mutual funds informed by the principles of sustainable investing. For all of us, it means publicly traded companies are being held to higher standards, and that can’t help but affect business practices that directly impact things like the environment, employee diversity and empowerment, and management activities.

Thank you, Joe.

For Wealth Managers, Differentiation Is Job #1

A number of years ago, through a marketing relationship with Charles Schwab Advisor Services, I had face-to-face meetings and telephone interviews with a number of financial advisors around the country. Some were partners in well-established, multi-billion-dollar firms and others had just recently bolted from wirehouses and hung their shingles. But to a person, they all seemed to genuinely enjoy what they were doing. They were devoted to their clients, were proud that they were delivering real value to them, felt they were being fairly compensated for their efforts and were optimistic about the future. I was impressed.

We are currently working with several wealth management firms, and it’s clear that various factors have made the business more challenging. Fees are under pressure; cable channels and the Internet have given investors easy access to information they may quote as gospel; millennials, a demographic expected to inherit vast sums of money in the not too distant future, are hard to attract and rein in; and portfolio construction itself is being threatened by commoditization and the emergence of roboinvesting. And while the managers we work with are fee-based, the new DOL fiduciary rule governing retirement investing is nonetheless raising questions about marketing parameters going forward.

The DOL notwithstanding, one thing remains true about good marketing, and that’s that it can help address some of the more common challenges advisors are facing today. The one we consider the most important to the success of progressive wealth management firms is differentiation – standing out.

Wealth managers are not all created equal.

These are the kind of questions we’ve encountered when working with our wealth management clients:

  • “What can we say and share about our firm to establish a discernible difference between ourselves and our competitors?”
  • “How can we position ourselves to strengthen our leverage with potential prospects?”
  • “How can we create a perception of difference?”

They understand that images of marble columns, couples on beaches and rowing sculls do not a differentiation make.

Here are some suggestions for any wealth management company that wants to try to distinguish itself in a crowded market.

Drill down to the point of leverage

In an environment in which competition for market share is more intense than ever and growth of the pool of prospects is reportedly near zero*, we believe financial advisory firms can gain an advantage by identifying their value proposition and promoting it actively.

Use internal and external research to arrive at a compelling platform that’s true to the brand.

Interviews with internal stakeholders, including firm leadership, portfolio managers and client service personnel, will help answer such questions as:

  • What are the attributes and strengths of the firm?
  • Do your current clients share common characteristics?
  • Can you describe the type of clients you’d like to be bringing in? How do they differ from your current base?
  • When a client chooses you rather than a competitor, what made the difference?

Interviews with current clients of the firm and centers of influence, typically accountants and lawyers the firm has a relationship with, will answers questions like:

  • In what ways does the firm provide value to you?
  • How did you first become aware of it?
  • What were the deciding factors that prompted you to choose it over other firms you may have been considering?
  • In what ways does the firm go “above and beyond” in its delivery of services?

Construct a positioning platform

Comparing and evaluating the responses that come from this kind of qualitative research makes it possible to craft a positioning platform that expresses the essence of the brand – what the firm stands for, what clients can expect from the relationship, how it provides added value.

The specific elements of the platform include a positioning statement, brand promise and messaging hierarchy, each of which is indispensable for good marketing.

Communicate your difference

For a wealth management firm, being able to communicate a meaningful difference can help it:

  • Create and expand mindshare
  • Compete more effectively
  • Reassure and retain current clients
  • Attract new clients by giving them reasons to believe they’ve found an advisor with a unique purpose and distinct point of view

This is the province of an authentic brand.

* The problems investment managers face are compounded by the fact that the number of new clients who are up for grabs is shrinking. Michael Kitces, who writes a lot about financial planning, summarized the situation this way. “While AUM and revenues are up, the ‘growth’ is increasingly coming from just the tailwind of market returns. Once those returns are backed out, the underlying net organic growth rates are rapidly approaching zero.”


Themelines: the tie that binds

I was riding my bike through downtown Boston recently and saw a Dana Farber Cancer Institute tag line newly applied to the side of a Dana Farber van. It said “Discover. Care. Believe.” I don’t love it, I don’t hate it, but I know where it comes from and how it was developed, presented and sold in. Call me a forensic scientist of tag lines (or themelines, as they’re commonly called). Dissecting Dana Farber’s new line, the first word describes the world-class research going on every day at “The Farber” and invites you to learn about it. Care is pretty obvious – it’s what every health care institution delivers, which carries an implication of emotional support, too. Believe is where the magic happens – Dana Farber researchers and caregivers — and of course, patients — believe in positive outcomes. I give it an A for effort, but a gentleman’s C for creative inspiration.

We at 360 are often involved in themeline development. Many of our branding and rebranding efforts focus on capturing a brand’s essence in shorthand, and that’s what themelines do. If we are successful, we have created a rallying cry for employees within and an inspirational message for various external stakeholders. Good themelines integrate well with all communications efforts. Great ones become nearly synonymous with a brand, its value and its values.

Chasing the “dream theme”

It’s hard to come up with a good tag line – really, really hard. Every day, thousands of creative teams, linguists and consultants boil down strategy statements, positioning presentations, value propositions and creative briefs, then put their minds to work in an effort to create the pithy, provocative, bang-on home run. The process is roughly akin to tiptoeing through a minefield. Many of the more obvious lines are already taken — by a firm in Omaha, Palm Beach, or Fargo.

So how do you develop a terrific tag line that has the potential to live a long, happy, productive life? Lines like Just Do It for a shoe company you may have heard of, an imperative that’s gotten millions out of bed at 5 in the morning when saner people are pushing the snooze button. Or We Bring Good Things to Life, a transcendent line that described GE’s reason for being for over a quarter century. Or #1 ball in golf – a themeline that remain familiar to golfers thanks to its consistent use by Titleist golf balls. Or For Tomorrow, two words that neatly summed up a sustainable investing mutual fund company’s commitment to investing wisely and making the world a better place in the bargain.

(Okay, I snuck the last one in. It’s one of 360’s taglines, and it’s something we’re still proud of 9 years after its introduction.)

If you’re interested in coining a new themeline for your company, here are a few pointers born of hard-won experience.

Don’t rush it

As Diana Ross sang, you can’t hurry love, and it takes time to sift through the chaff.

Be inclusive

We tell our clients, “Good ideas can come from anyone,” and we encourage contributions from all quarters.

Weed and feed

If you have an idea that’s not quite there, try subtracting words or finding synonyms that add personality, attitude or meaning.

Evaluate on the messaging continuum

Draw a line and write “literal” on the left end, “suggestive” in the middle and “fanciful” on the right, then place the themelines under consideration where they seem to fit along the line. Emotional hooks tend to gravitate to the right and rational lines to the left. This can help to determine the appropriate fit for your brand strategy.

Put it up against a competitor’s brand

Look at lines you’ve come up with under your competition’s logo. Does it work equally well there? Then it may be a good category line, but not a differentiating brand line.

Review and winnow down

Good themelines often rise to the top through pure merit, and there is general recognition that you have a winner on your hands. That said, if everyone likes — but doesn’t love — a selected themeline, you may be flirting with mediocrity. Evalute carefully. Take seriously objections which may reveal a fatal flaw. Get opinions from outside the conference room. And thoroughly check all legal or competitive claims to similar lines.  A web search and a check with the U.S. Patent and Trademark site will reveal issues quickly.  Lastly, anticipate tweaks in company direction and be sure that the line is future-ready.

Pencils down

When you have a line that’s credible, inspirational and memorable, you’re done. Congratulations.

Launch with purpose

While the virtues of a new themeline may appear self-evident, don’t miss the opportunity to introduce it thoughtfully and intentionally to all internal stakeholders before rolling it out to the market. Share why it is an asset, how it was developed, the logic behind it, and leverage the opportunity to draw attention to the main tenets of your brand strategy – your brand’s value and how best to communicate it to others.

To view some of the themelines developed by 360 Branding & Communications, visit our themeline gallery.

Knight Moves

Earlier in my career, I did advertising for New Balance, and Nike to me was the big, bad enemy.

Sure, it was the dominant brand in the athletic footwear category, had the slickest, most impressive, most crowded booths every year at the National Shoe Show and could basically buy athletes at will. (American runner Steve Prefontaine – “Pre” – was one of the first big-name athletes to ink a deal, receiving a $5,000 stipend in 1973 so he could stop bartending and concentrate solely on running.) But I never thought their footwear was as well made or technologically advanced as NB’s. And while I grudgingly admired Nike’s advertising, I didn’t have a particularly high opinion of the company itself.

In my dismissiveness, I thought Nike was another example of a mass-market company that didn’t stack up to a smaller, more exclusive competitor. It wasn’t exactly IBM versus Apple, but in my mind, it was something like that.

Recently, though, I read Phil Knight’s fascinating, heartfelt autobiography, Shoe Dog, and candidly, I found myself seriously rethinking my point of view about Nike.

There’s no doubt about it – this is one of the great success stories in contemporary American business. More than that, it’s a tribute to one man’s unwillingness to settle. Talk about just doing it.

A passionate evangelizer for the transcendence of sports, Knight was determined to create a company whose brand essence epitomized that concept. He founded its precursor company, Blue Ribbon Sports, in 1964 based on a thesis he wrote during his MBA program at Stanford Business School. Any number of things along the way to Nikedom could have derailed his ambitions – a bad economy, inadequate funding, resistant bankers, distribution challenges and, most especially, lack of cooperation from Onitsuka, the Japanese company that manufactured Tiger running shoes, which were Blue Ribbon’s sole product. But Phil Knight was a man on a mission. Long before “There is no finish line” became a popular Nike ad, it was his personal mantra.

As I think about strong brands, it’s interesting to me how often they are born of the passions of one exceptional leader. Think Steve Jobs, think Howard Schultz, think Mickey Drexler, think Elon Musk. In advertising, think Bill Bernbach and David Ogilvy. And most definitely, think Phil Knight.

There may be no more authentic brands than those founded or driven by strong leaders whose personal vision and corporate mission statement are essentially one and the same. That kind of passion is contagious, inspiring and differentiating. People who are part of companies like that know why they get up and go to work every day. It’s why Phil Knight was able to attract a group of talented individuals to a company that often could barely pay its bills.

About Nike, I stand corrected.