Investors have a serious decision to make when a fund manager either retires – as seen in the case of Jupiter’s Anthony Nutt late last year – or jumps ship for a rival company, Richard Buxton-style.
Chelsea Financial’s Darius McDermott (pictured) says unlike in football, investors are likely to follow the manager if they jump ship.
"As a football supporter, if your manager changes you don’t change your allegiance, but when it comes to investing you’re talking about wealth and you might want to make a change if the manager is no longer there," he said. Invesco Perpetual’s Neil Woodford is the first name that springs to mind, with 25 years under his belt on his flagship Invesco Perpetual High Income fund.
"Neil Woodford owns that franchise. The Invesco franchise, that’s him," McDermott said.
The FE Alpha Manager has been running the five crown-rated portfolio since launch in 1988, over which time he has made 2,137.38 per cent – impressive returns by anyone’s standards.
The £13.4bn fund sits in the IMA UK Equity Income sector, which opened a year after the fund’s launch.
Since then, the fund has smashed the performance of its peers, returning 1,519.93 per cent, while the sector has gained just 533.87 per cent, according to FE Analytics.
Performance of fund vs sector since Dec 1989
Source: FE Analytics
McDermott says that with such impressive returns, if the manager was to leave Invesco for another company, the bulk of his investors would follow.
However, he says that if a high-profile manager retires, then the most important consideration for investors is to find out how the company has planned for their succession.
"It’s all about succession planning and who the obvious successor would be," he explained.
Hargreaves Lansdown’s Mark Dampier believes there is no threat of Woodford leaving for another company.
"I’d put serious money on that," he said.
When asked how he would react if Woodford was to retire, Dampier said the prospect was a daunting one.
"I rather hope I’d have already retired myself," he joked.
Dampier says that if Woodford does retire, he would expect Invesco to handle the process in a highly organised way, with between 18 and 24 months' notice that Woodford was going to go.
He adds that Woodford has a strong UK team around him, including FE Alpha Manager Mark Barnett (pictured).
However, he says much like Fidelity’s Anthony Bolton, Woodford would be difficult to replace. "I’m not sure you can manufacture fund managers and therein lies the problem," he added.
"If you follow a fund manager that closely and he’s got a track record like that, that’s tough, but where do you go?"
Dampier says many of the best managers in the space, such as Artemis’s Adrian Frost, are of a similar age, which means the alternatives are few for the next "big thing".
Moreover, he says each manager has their own style and cannot be expected to replicate the performance of a predecessor.
"Mark Barnett’s not going to be another Neil Woodford, he’s going to be a Mark Barnett," Dampier added.
McDermott highlights the corporate structure of star small cap manager Giles Hargreave’s firm Hargreave Hale, which he says is well prepared for the future.
"Marlborough has a very strong small cap team, but Giles Hargreave is the face of the firm if you like," he said.
"The team has all grown up with Giles’ way of working and that’s obviously a very good way of working."
The FE Alpha Manager has been managing his flagship Marlborough Special Situations fund for nearly 15 years, but says he has no plans of retiring any time soon.
Over that time, the four crown-rated fund has made a whopping 1,315.06 per cent, leaving the 226.97 per cent return of the IMA UK Smaller Companies sector in the dust.
Performance of fund vs sector since July 1998
Source: FE Analytics
McDermott says in the case of Hargreave Hale, there is a clear succession plan in place by the way the company is managed; however, that does not mean the manager is anywhere near retirement.
More recently, star manager Richard Buxton left Schroders and his flagship Schroder UK Alpha Plus fund to join Old Mutual.
McDermott says "the fund was him", and understands why many investors would want to follow him.
However, for investors who are currently in the fund, McDermott advocates waiting to see how the new management team fares.
"It’s one thing having a succession plan but another thing having a successful succession plan," he said. "Schroders has done a good job and this could be the next generation of manager. The numbers look pretty good."
Jupiter’s Philip Matthews was recently announced as Buxton’s successor.