When choosing the best performing investment funds the bigger a fund is does not mean it is better. Choosing the wrong fund because it is a big brand name can cost you money.

Investors are people to. They are susceptible to slick marketing just like everyone else. A big fund will often use their size in their marketing and associate that size with safety even if they don’t directly state this. You need to remember that this is just marketing. You should never invest your money in a fund because you are told that everyone else is doing it. In marketing, this is called the bandwagon effect. You need to look at the actual fund more than anything else.

Over recent years, the UK market has seen a rise in popularity for boutique investment houses, and, given their track record of consistent positive performance, it’s hardly surprising. There are many ways to classify a boutique, but generally speaking, boutique fund managers are independently-owned or employee-owned, and relatively small in size. They often invest in specialist areas of expertise, rather than attempt to be all things to all men and run funds across each and every sector.

Boutique investment houses have become so popular that they are now gaining market share against the big brand named fund managers. Last year, boutiques beat the larger fund companies in terms of performance. Boutiques took the top 4 spots in terms of performance while big brands like UBS and Standard Life fell in their rankings.

Millions of dollars were wiped off the prices of stocks in the last quarter of 2006 when the economy first turned down. Boutique investment houses, who lost as well, did not lose near as much as their larger rivals. Even in this tough economic environment, boutiques still managed to outperform larger fund managers.

Unfortunately most investors have never heard of these smaller investment houses and hence are missing out on a great investment opportunity.

The same caution applied to big brands should also be applied to big names – or the so called ’star fund managers’. Is it wise to stake your money on the reputation of an individual big-name fund manager when there’s no guarantee they will stick around?

Research shows that just 15% of managers have run the same fund for over six years, 43% for four to six years, and 39% for two to four years. Similarly, 80% of fund managers at the top 50 UK fund providers have left their funds in the last three years. Around 60% of managers move because of offers from competitors.

Becoming familiar with a fund is usually a bad thing. Establishing emotional connections to a fund or fund manager is the biggest reason people lose money in the stock market. The only thing that should matter is the current performance of the fund you are in.

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