Christoph Hott

“Generally a successful fund manager is rewarded for past performance by huge inflows once the “community” recognises the excellence of the fund, leading to an upward market movement. A recent example is the Schroders Euro Dynamic Growth fund. But when things start to worsen and the first investors start to take profits, the fund manager is forced to liquidate large positions of illiquid names, driving prices down. More investors then decide to sell the fund. Exactly this has happened with the Schroders fund since the summer 2007, and the spiral only ended recently. Remarkably the relative performance immediately improved to previous levels as soon as there were no major net outflows.”