O ne of the key things that fund managers strive for is consistency. I have lost count of the number of times that a fund manager has insisted that they are ‘not looking to shoot the lights out’ but want to ‘achieve a consistency of returns’.

This is an extremely laudable objective – a steady level of performance without volatility – but it does come with an assumption that performance will not only be consistent, it will also be positive and, preferably towards the top rather than the bottom of the performance tables. An investment that consistently underperforms is no use to anyone (unless it is in a form that enables you to ‘go short’).

Institutional underperformance
The law of the investment jungle would suggest that a consistently under-performing fund manager won’t stay in the job for very long or, at the very least, their fund will be swallowed up by something more successful. But it is possible to witness ‘institutional under-performance’ over quite a long period of time.

For example, it is a pretty useful general rule that banks do not make good fund managers. There are some honourable exceptions – HSBC, for one, has some very strong performers in its investment division – but, by and large, if you want a bank account, go to a bank, and if you want investment management, go to a specialist investment management house.

But if banks are notoriously bad at getting their investment timing right, then governments are even worse, whatever their political hue. If a government introduces a major investment initiative, you can just about guarantee that it will be the worst possible moment to make that type of investment.

Negative indicators
The past 20 years have seen a string of examples, from the introduction of personal equity plans a few months before the 1987 market crash to the arrival of REITs at the beginning of 2006, just as the property market was about to boil over.

The process also works in reverse. One of the sobering aspects to being well into my third decade of financial journalism is the regularity with which I now attend celebrations to mark the 20th anniversary of investment funds to find that I am one of the few, if not the only person present, who was also there at the launch.

This was the case recently for the 20th birthday of the Blackrock Merrill Lynch Gold & General Fund, which has undergone several name changes over the years but which has, by and large, kept to the same mandate for the whole of that time.

As you might expect from a fund primarily investing in companies that mine and refine precious metals, it has been one of the more volatile funds over the past 20 years, but also the most successful, with a total return of over 2,600 per cent over the period.

Brown’s Bottom
One of the key reasons for this level of performance has been consistency of management, with the fund’s current manager, Graham Birch, having been involved with the fund for the whole of its existence.

Birch has reminded investors that the fund’s performance had been achieved over a period when the gold price was in a severe decline, before its recent dramatic rise. Which brings us to the spectacular own goal referred to in the commodity markets as ‘Brown’s Bottom’.

For it was our current prime minister who, in 2001, resolved to sell around half of the nation’s gold reserves, when the price stood at US$250 an ounce. This was the same commodity that hit $1,000 an ounce earlier this year and the fundamentals of the market suggest its future momentum will be up rather than down.

As Gordon Brown’s reputation for financial prudence continues to unravel over the summer, it is worth remembering this – when the government tries to get you to invest in shares, put your portfolio into cash; and when it is selling gold, buy the stuff like it is going out of fashion!