With thousands of funds and strategies, it can often be hard for investors to decide what to look for when constructing a portfolio.
As such, we asked four financial professionals to share with us the single most important question investors need to ask their portfolio manager.
Adrian Lowcock (pictured), head of personal investing at Willis Owen, said if he had just one question to ask it would be: “What have you learnt from mistakes or any poor investments?” 
Lowcock said this was one of the most important questions to ask, as it focuses on a fund managers’ mistakes or failings, and that it referred to situations where we learned most about a person.
“The answer can be very enlightening, and it should help get the measure of the fund manager,” he said.
“Do they recognise their mistakes and learn from them, how they are impacted by poor investment decisions? Does their process work, and do they make any improvements to it when mistakes are made?”
By not asking this question, he said, “you don’t get insights about whether the process is working, and only see the success side which is naturally the one they want to show you.”
He added that a good answer is one where the manager can give an example fairly quickly.
“They should be scarred by their worst investment decisions, and be able to quickly point to the lessons and whether they made any changes to their process or thinking,” he explained.
The fund picker warned, however, that narrowing all the good questions down to a single one is not easy.
This was a view echoed by Jason Hollands, managing director of business development and communications at Tilney Investment Management Services.
“In reality we believe it is vital to ask many questions of fund managers as part of our research and due diligence,” Hollands said. “Grilling them intensely is important because there are so many things that simply can’t be learned just by looking at the data.”
He said it was important to understand how they managed risk, how scalable the strategy was, what resources were available to them.
“You want to know whether they have any additional responsibilities that may distract them, and how tied in they are to the business through remuneration and incentive structures, to name a few,” said the Tilney managing director.
Having made that clear, he said one key question that encompassed much of it was “What is your process?”.
Irrespective of a strong track record, Hollands (pictured) said, he was suspicious of “seat of the pants” fund managers who couldn’t clearly articulate what made them tick, how they approached the role, what characteristics they looked for in a stock, and what might trigger a sale. 
“A manager without a clear process is effectively asking investors to trust their judgement and cleverness,” he said.
“I’m very wary of that, because it is a licence to allow them to do whatever they like, and it is hard to monitor them and signs that they are straying into areas or a style of investing which is outside their experience or competency and could end up going badly wrong.”
On the other hand, he went on, if a manager tells you they have a strong valuation discipline, or they take a buy-and-hold approach, and then you see them buying stocks on high multiples, or trading the portfolio heavily, you have a reference point to go back and challenge them.
“On a personal level, we always ask managers how much of their own wealth they have in the fund and most don’t have any qualms telling us,” Hollands added.
He conceded there could be legitimate reasons why a manager doesn’t invest in the fund – such as the strategy not being relevant to their objectives.
“But as a general rule, I like chefs who are happy to eat in their own restaurants,” he said. “Likewise, if a manager has skin in the game and is personally invested in their fund, it creates a strong personal alignment of interests between them and investors.”
Ben Willis, head of portfolio management at Chase de Vere, began with a now-familiar admonition: “This is a difficult question to answer because, of course, in reality we would be asking many more than one question – and it isn’t likely to be just one answer which determines whether we invest or not.”
His one question was: “Do you invest in your own fund?”
It is essential, he stressed, that a fund manager aligns their interests with that of investors.
“If they have no ‘skin in the game,’ then you have to ask if they are 100 per cent acting in your best interests,” Willis said. “If they don’t, then the integrity of the fund manager comes under scrutiny.”
If they are not going to experience the same fortunes as investors, he asked: “Do they care 100 per cent?”
Fund managers learning from their mistakes and not repeating them “is crucial for successful investing,” said Tracy Zhao (pictured), investment research analyst at The Share Centre. 
“Everyone makes mistakes, but I prefer a manager who can openly discuss it,” she said. “The more open a manager is about their failures, the more comfortable and confident I feel. Learning lessons from mistakes is the best way to avoid them in future.”
Zhao said she looked for three things in an answer.
The first is honesty; then, the reasons why the mistake happened, as well as the steps taken to rectify the situation; and lastly, lessons learned from the mistake and how the fund manager would prevent it from happening again.
“Fund managers typically spend most of their time discussing stock screening and selection processes, providing examples of selected stocks which are, normally, the star stocks in the portfolio,” she said.
To question their failures is important as unsuccessful stories only get “a very light touch” or fail to be mentioned at all, she added.
“I prefer to see a full picture of a fund rather than a rosy one and by not asking this question I would fail to assess the qualitative aspects of the manager I invest in.”