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February 13, 2009 6:55 pm
When Jeremy Lang and William Pattisson announced they would step down as investment directors of Liontrust, some advisers encouraged investors to consider moving with them.
Such is the importance vested in “star” fund managers that fears have emerged that “Langtrust’s” in-house investment process will suffer when the pair – who between them manage more than £3bn of the firm’s £3.5bn funds – leave next January.
“Lang and Pattisson are part of Liontrust’s DNA; their signature investment process has become the sacred writ of the company’s approach to asset management,” says Darius McDermott, managing director with Chelsea Financial Services, the advisory firm. “And I don’t think Liontrust will bring in a replacement who is going to run money the same way as Jeremy Lang. You don’t bring in a big name and tell them to run money under someone else’s process.”
A quick glance at performance suggests there is some truth to the idea that investors should follow fund managers.
Since Neil Woodford took the helm in 1990, Invesco Perpetual’s Income fund has returned 917 per cent against a 299 per cent return by the equity income sector benchmark. Angus Tulloch’s First State Asia Pacific fund is up 1,286 per cent since 1988, meanwhile; while Fidelity’s Special Situations fund returned an eye-popping 15,320 per cent under the leadership of Anthony Bolton from 1979 to the end of 2007.
Mick Gilligan, head of research at Killik & Co, the adviser, says: “The managed fund universe is riddled with lots of mediocre funds and not that many really good managers. If you happen to be with one, I’d say move with them.”
Since Bolton handed the reins of the Special Situations funds to Sanjeev Shah, the fund has outperformed its UK all companies benchmark, but is still down 27.5 per cent. Even so, a number of advisers are betting performance will recover when equities rebound.
“Fidelity had a very hard job with Anthony Bolton’s successor but Sanjeev had been a ‘rising’ star in his own right when he ran Fidelity’s UK Aggressive fund,” points out McDermott.
New managers tend to re-shape portfolios by selling shares they do not like and replacing them with favourites. If a co-manager takes over, the changes are likely to be minimal as he or she will have worked closely with the departing manager and agree on strategy. But a manager recruited from another house is likely
to introduce “wholesale” changes.
Shah has parted ways with Bolton, for instance, by increasing fund holdings by 20 to 150 stocks and bulking up on retailers and housebuilders. He has also adopted a small position in a basket of banking stocks, which include Alliance & Leicester, HBOS and Lloyds.
“Shah favours companies with strong finances, such as Provident Financial, a speciality financial services company with a growing market share,” says Mark Dampier, head of research at Hargreaves Lansdown in a note to investors. “Within the retail sector, he likes N Brown, the internet and home shopping group, which he believes will benefit from healthy online sales, as well as Kingfisher, the DIY firm.”
If a manager is part of a team, though, it can be difficult for investors to assess his or her importance. A firm’s culture has some bearing on performance and so do its investment processes. At a larger house, quantitative screening methods, for example, may help prevent managers from following through on poor decisions. By contrast, the performance of a manager at boutique firms is more directly tied to skills.
In general, investors are better protected in open-ended investment companies (Oeics) and unit trusts as there is no immediate impact on portfolios if managers leave – because these funds are priced according to their net asset values (NAV).
“This gives investors time to find out who the new manager will be and see how they perform,” claims Tim Cockerill, an adviser at Rowan & Co.
And there are cases when a new manager rises to the challenge upon taking the helm. Tony Knut, for example, has given investors a 46 per cent return since 2000 when he took over Jupiter’s Income trust from William Littlewood, who brought the fund to prominence with a 395 per cent return during the 1990s.
Other funds, such as Newton Higher Income, have shrugged off departures – its successful record has remained untrampled in the last 10 years in spite of the departures of Clive Beagles and Toby Thompson. “The fund is run on a team-based process with input from Newton’s analysts,” explains McDermott. “In each case, the new manager has outperformed the old one.”
But while some managers do well after trading jobs, others lose their lustre. Steven Whittaker oversaw a 320 per cent return during his 15-year tenure at Invesco Perpetual’s UK growth fund. However, when he joined New Star in 2002, bullish calls on banking stocks and the online gambling sector were blamed for the 20 per cent loss reported by its UK Growth fund.
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