Many of the UK’s highest-profile managers have been around for many years, and some of the leading names are likely to hang up their boots in the coming decade.
Moreover, as FE Trustnet has pointed out on numerous occasions, the popularity of managers can often lead to vast and fast inflows, which can have an adverse impact on performance.
FE Alpha Manager David Coombs voiced these concerns in a recent interview with FE Trustnet, insisting that more research needs to be put in to finding the up-and-coming stars of the industry, who as yet do not have any problems with flexibility or liquidity.
"It’s about trying to find the next big thing, the next Newton Asian Income," he said.
With this in mind, FE Trustnet asks industry professionals to highlight future stars, starting with the in-demand UK Equity Income sector.
Matt Hudson, Cazenove
"Equity income is pretty much the fund management premier league and is dominated by some long-standing big beasts, namely Neil Woodford and Adrian Frost," said Jason Hollands, managing director of business and communications at Bestinvest. "Other experienced hands include Fidelity’s Michael Clark, Leigh Harrison at Threadneedle and Clive Beagles at JO Hambro Capital Management.
"In terms of lesser-known names who are developing very strong records, I would single out Matt Hudson (pictured), manager of Cazenove UK Equity Income."
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
"Matt has recently clocked up a five-year track record and has an average monthly outperformance of 0.31 per cent over his career in the sector."
"He has also been very consistent in outperforming, beating the index in 62 per cent of months that he has managed money – which is very high."
Over five years the fund has outperformed the All Share Index by 23 percentage points, putting it in the seventh percentile of the sector, and has beaten the index in four out of the last five calendar years.
Year-on-year performance of fund vs sector and index
| Name | 2012 (%) | 2011 (%) | 2010 (%) | 2009 (%) | 2008 (%) |
|---|---|---|---|---|---|
| Cazenove UK Equity Income | 20.42 | 1.03 | 17.32 | 20.78 | -25.93 |
| IMA UK Equity Income | 14.01 | -2.9 | 14.58 | 22.88 | -28.54 |
| FTSE All Share | 12.3 | -3.46 | 14.51 | 30.12 | -29.93 |
Source: FE Analytics
"The fund is currently small in size at £335m but the process should be reasonably scalable as it is 50 per cent invested in large caps, 36 per cent in mid caps and 14 per cent in small caps," Hollands added.
The five crown-rated Cazenove UK Equity Income fund requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 1.62 per cent. It is currently yielding 3.4 per cent.
Like colleague Julie Dean, Hudson uses a top-down business-cycle approach to investing and therefore has a higher turnover than a lot of his rivals. His top-10 is currently dominated by large caps, including the likes of HSBC, Vodafone and Rio Tinto.
Hollands believes that Schroders’ imminent acquisition of Cazenove could help Hudson’s reputation.
"The teaming up of Cazenove and Schroders will give him access to bigger distribution platforms," he said.
"When I met with him on the investor relations side when I was working with F&C, I was very impressed – he’s a very sharp guy, and the numbers certainly look good."
Martin Cholwill, Royal London
"This is maybe a strange one because Martin [pictured] has a wealth of experience and has been around for a long time, but he’s not running a huge amount of money," said Mark Dampier, head of research at Hargreaves Lansdown.
"He hasn’t got the name, I suppose, but has a very consistent record and is one that maybe should get a bit more attention."
FE Trustnet recently pointed out that Cholwill’s £428m Royal London UK Equity Income fund is the only portfolio in IMA UK Equity Income that has beaten its sector average in each of the last five calendar years.
This has, inevitably, led to very strong cumulative performance. Our data shows that the fund is a top-quartile performer over one, three, five and 10 years.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Cholwill has run the fund since 2005, but his career in fund management goes back to the 1980s. He ran the AXA UK Equity Income fund between 1996 until its close.
The manager invests predominantly in large caps, but has the flexibility to prop up returns with small and mid caps. FTSE 250 companies Berendsen and Restaurant Group are both top-10 holdings.
The fund is yielding 3.72 per cent, is available for a minimum investment of £1,000 and has an OCF of 1.32 per cent.
Stephen Message and Thomas Moore
Dampier also highlights Old Mutual’s Stephen Message and Standard Life’s Thomas Moore as potential stars for the future, but points out that they have not yet gone through a full business cycle.
He says he has been very impressed every time he has met with the managers.
"These are the two names that immediately sprung to mind," commented Dampier. "[Head of equities at Old Mutual] Ashton Bradbury rates Stephen very highly indeed, but I think you’ve always got to be a bit careful when you don’t have a long track record."
"I think a full business cycle, or seven years, is a good number."
Both Message and Moore started running their portfolios – Old Mutual UK Equity Income and Standard Life UK Equity Income Unconstrained – in 2009. Moore has a slightly longer record, starting in January, while Message started in December.
Performance of funds vs sector and index over 3yrs
Source: FE Analytics
Both funds are top quartile over three years, but have both been more volatile.
"They’re both really enthusiastic guys, and have really good records," he said. "However, you’ve got to remember the market has pretty much doubled since 2009. Time will tell how they fare in other market conditions."
Dampier does point out that he started investing in Neil Woodford back in 1992 when the manager only had a four-year track record, showing that sometimes it is worthwhile backing a manager early on.
The £128m Standard Life UK Equity Income Unconstrained fund requires a minimum investment of £1,000 and has an OCF of 1.91 per cent.
The £53m Old Mutual UK Equity Income fund requires a minimum investment of £1,000 and has an OCF of 1.73 per cent.