6 September 2010

A sign of strength is somebody that admits mistakes...but ultimately learns from them

One sign of quality among operators in any business is their willingness to admit to their own mistakes.  Unless you can put up your hands and take responsibility you won’t address your own failings and you won’t be able to improve in the future-this is especially true of the highest flyers who can perhaps be especially prone to believing their own PR. One aspect of Emerging Market legend, Mark Mobius that pleasantly surprised audiences during his recent trip to Bangkok the man’s humility and willingness to admit to his mistakes, rare as they have been  over the years.

We’re therefore pleased that Carmignac director Eric Le Coz has assumed responsibility for his firm’s flagship fund’s poor performance in July in his latest monthly report following an ‘excess of prudence’ in the global strategy.

Eric Le Coz manages the Carmignac Patrimoine fund, a holding with the Osmium’ Iridium and Alpha portfolio and the largest fund in Europe it underperformed its benchmark in July, posting negative returns of 3.9% while the benchmark fell by 0.6%. In a candidly written report Le Coz admits ‘mea culpa’ for this rare period of underperformance.

‘The performances of our global management, which were disappointing last month, were the result of an excess of prudence and wariness towards the European circumstances,’

A few too many gold mines - the quintessential refuge - not enough financials, especially European, not enough euros and too many dollars – mea culpa,’

He added that last month they had maintained a low euro exposure and a significant underweight position towards equities. But the 'seasonal transitional phase' brought about a significant drop in the dollar (-9% for the currency since June 4) and a strong recovery of the financials equity sector (+27% for European banks since the low period of June 8).

‘I would rather not have to admit it, but we did not properly manage these movements throughout last month,’
In the report’s conclusion, Le Coz wrote that he believes this transition phase the market has been experiencing is reaching its end.

Bearing in mid that over the last five years the Carmignac Patrimoine fund has returned 53.1% while its Citywire benchmark, LCI MSCI World Free/Citigroup WGBI TR (50:50), has risen just 14.7% in euro terms over the same period, we can forgive them this rare blemish and perhaps this honesty explains why the fund, which with assets under management of more than €20 billion, is Europe’s largest, and why it continues to report huge inflows. In July alone it saw €3.2 billion of new money.

A constant striving for perfection and a healthy disappointment whenever anything less than that is achieved is a trait we find enduring in even the most successful investment managers, especially when the underperformance is due to an “ excess of prudence”