19th March 2013
When a star fund manager decides to move onto new pastures, does it pay to stick with the fund, or follow the particular stock-picker in pursuit of profit? Investors might be wondering which is the wisest path following a series of resignations, with the latest being Schroders’ star Richard Buxton. Financial journalist Harriet Meyer considers the issues.
As one of the top performing and most popular managers, his departure will have rattled investors’ nerves, but they were warned not to panic sell when he announced his resignation last week to go to Old Mutual.
Mark Dampier, head of research at Hargreaves Lansdown, said: “Investors don’t need to rush to sell this fund, since Richard is staying on until June. When we know who is taking over the fund we will be able to inform investors.”
Mr Buxton managed the Schroders UK Alpha Plus fund, and returned a hefty 222 per cent since its launch back in 2002, compared to a sector average of 107 per cent. Yet while he stuck around for over a decade, investors would have hoped for longer given his was clearly a safe pair of hands. This move prompted the fund to be removed from Stockbroker Charles Stanley ‘buy’ list until a successor is announced, while fund broker Bestinvest downgraded it to ‘hold’.
Several high profile fund managers have handed over the reins in recent years. In December last year Jupiter’s Anthony Nutt announced he was leaving and passed his Jupiter Income Trust and High Income fund to managers Ben Whitmore and Philip Matthews.
But should investors sell out, or stay put?
It is certainly time to review the situation, said Philippa Gee from Philippa Gee Wealth Management, but there are several factors to consider – particularly how the investment group operates.
She said: “If you have a fund which is very much process driven and where the investment group have a thorough and established protocol that the fund itself mirrors, then you don’t have such a headache, as the calibre of what made that fund strong in the first place remains.”
Darius McDermott, managing director of Chelsea Financial Services, added: “If the investment process is very much team driven, thematic in approach or heavily reliant on analyst tips, then there is a good chance the fund will continue in much the same way without the star manager.”
But Gee warned: “However, if you have a fund manager who is more of a maverick and has delivered strong returns on that basis, by offering their unique take on markets and making investments accordingly, then you have a major issue.”
Patrick Connolly of AWD Chase de Vere, points to Jupiter and Artemis as investment houses where managers are given a great deal of autonomy, and managers who perform well tend to stay put for some time.
“So when managers leave they can be more difficult to replace,” he said. “In contrast many firms, such as Aberdeen, JPM and Threadneedle adopt more of a team approach and so it is usually business as usual when a manager leaves.”
So it’s vital to do some research before hitting eject. After all, selling can leave you with potential tax liabilities, as well as transaction costs and being out of the market for a period, so it needs careful thought.
Given time, once the successor is announced, investors can make a clear decision. However, in Schroders’ case, McDermott says: “There are two UK teams really – one which concentrates on low value, recovery type stocks and one which was more concentrated growth strategies, lead by Richard. Schroders has a couple of months to make a significant hire, otherwise investors will follow Richard to Old Mutual.”
There are several clear examples of when it has been right to follow a fund manager, such as when John Wood and Clive Beagles moved to JO Hambro from Newton. “Both managers are now running similar funds and doing well for investors,” said McDermott.
Meanwhile, manager Stephen Snowdon made a successful move from Old Mutual to Kames and is now running the Kames Investment Grade Bond.
Mr Connolly added: “Nigel Thomas, fund manager of AXA Framlington UK Select Opportunities, is a great example of a star fund manager who had success previously running the ABN AMRO UK Growth fund, and has done just as well since joining AXA Framlington in 2002.”
But when a successful fund manager leaves, his replacement should be scrutinised. For example, in the case of Fidelity Special Situations, Hargreaves Lansdown took it off its Wealth 150 list of top funds when Anthony Bolton stepped down. However, it was put back on the list a few years later in 2010 when the track record of new manager, Sanjeev Shah, had been assessed.
And remember, just because a manager is deemed a ‘star’ doesn’t mean they won’t suffer periods of underperformance –they might not stay on top of their game. Some may fall by the wayside, demonstrating the danger of following a star in the hope of stellar profits.
So perhaps on sudden news of a fund manager departure, it is wise not to panic and react impulsively, but use this time to review your situation and investment portfolio.
It could be the right time to refocus and ensure you have a broad range of investments that have the potential to perform consistently over the long-term.