One of best things about being around this industry longer than I care to admit is watching good people succeed and prosper. The folks at Aston Funds certainly fall into that category for me. I first met Stu Bilton, CEO, and Ken Anderson, president, back in the mid-‘90s, when I visited their offices at what was then called Chicago Trust.
At that time, I was very much impressed not only with the matter-of-fact, down-to-earth demeanor that I’ve found to be typical of competent professionals, but also with their corresponding approach of bringing institutional-grade analysis to identifying and monitoring managers for their retail mutual funds. It seemed to me they offered a level of research that the majority of independent advisors don’t have the training or the time to do, at virtually no cost.
Fast forward to a couple of weeks ago, and three iterations from Chicago Trust Funds to Allegheny Funds to Aston Funds, when I had a chance to catch up with Stu and Ken again, to see how things had turned out for them and their novel approach to creating mutual funds for independent advisors. I quickly realized that with many advisors rethinking their traditional approach to managing client portfolios these days, Aston’s funds were more timely than ever—offering advisors a sophisticated, institutional alternative to the buy-and-hold allocation and to the “tactical allocation” which is currently attracting so much attention lately.
Apparently, many advisors have come to the same conclusion: Assets under management in Aston’s 24 funds have more than tripled since November 2008, from $3 billion to some $9.3 billion at the beginning of this year. Their reasoning isn’t hard to understand. Of the 20 Aston funds with enough tenure to be rated by Morningstar, five are five-star funds, and another four funds have earned four stars. Their returns are even more impressive: The ASTON/Optimum Mid Cap Fund posted a yearly 13.13% since ‘94; The ASTON/TAMRO Diversified Equity Fund’s annual returns are 5.77% since 2001; ASTON/Montag & Caldwell Growth Fund has returned an average annual 8.70% since 1994. Even the ASTON/Montag & Caldwell Balanced Fund has returned 7.64% a year since ‘94; and the ASTON/TCH Fixed Income Fund has managed 6.30% annually since 1993.
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Rather than the typical mutual fund approach of hiring fund managers and branding their funds, Aston seeks out independent managers to sub-advise their funds. That way, rather then being limited to investment professionals they can actually hire, Aston has a much broader universe of fund managers and institutional managers from which to select “best of breed” partners. Consequently, their fund lineup reads as a Who’s Who of institutional and fund managers. In addition to the sub-advisors mentioned above, Aston also offers funds managed by River Road Asset Management, Cardinal Capital Management, MD Sass Investor Services and Barings Asset Management, to name a few. “We didn’t want to own the managers,” says Bilton. “Then you have to buy into them. You lose your objectivity.”
It’s that arms-length objectivity that enables Aston to make rational decisions regarding their sub-advisors. It’s a perspective that advisors who manage their clients’ portfolios would do well to emulate. For instance, as Bilton and Anderson see it, the most crucial decision in investment management isn’t when to fire a manager; it’s when to stick with him or her.
Aston very rarely “fire” their sub-advisors. “The biggest mistake we see people make is dropping fund managers from their portfolios prematurely,” says Bilton. “They almost always fire the manager at exactly the wrong time. Then the investors get whipsawed: The new manager, who was picked for high recent performance hits the downside of his cycle, while the ‘fired’ manager finally recovers. If you believe in your manager’s investment discipline, his or her performance will eventually come back. Remember how much criticism [Warren] Buffet took during the tech bubble?”