The returns of some funds are more driven by the ability and personality of the manager whereas others are more dependent on a shared process or strategy that is easier to replicate if the manager moves on.
Bestinvest’s Jason Hollands says it is important to work out whether your portfolio is exposed to this "key man risk".
"Although some funds are heavily team- or process-driven, and many others benefit behind the scenes from the input of teams of analysts, strategists and dealers supporting a prominent figurehead, it remains the case that many of the most successful actively managed investment funds still rely on the skills and judgment of a key trigger-puller," he said.
"This means it is vital to keep on top of who is managing your money, always reappraise the situation when a major change takes place and to look behind the performance of a fund to that of the career track record of the individual manager currently running it today, since the two may not be the same," he added.
There are a number of funds where the performance is much more dependent on the ability of the trigger-puller rather than its process, meaning that the departure of the manager could more severely impact investors.
Gavin Haynes, managing director at Whitechurch, highlights FE Alpha Manager Nigel Thomas’s £4.2bn AXA Framlington UK Select Opportunities fund as an example.
According to FE Analytics, his fund is a top-quartile performer in the highly competitive IMA UK All Companies sector over 10 years with returns of 212.88 per cent, beating the FTSE All Share by more than 80 percentage points.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Those returns have not been because of one or two good years, however, as Thomas’s fund has beaten its benchmark and index in every calendar year between 2003 and 2011.
"Nigel Thomas is clearly one," Haynes continued. "He has proved to be an excellent stockpicker and his fund’s performance is down to a number of decisions he has made."
"It really is an example of a fund where the returns have been driven by the manager’s own calls and thematic views."
Tim Cockerill, investment director at Rowan Dartington, says there are a number of high-profile funds that fit into the star manager risk bracket.
"I suppose Alexander Darwall’s Jupiter European fund is one, the performance has very much been down to him," he said.
"With something like that, or Alastair Mundy’s Investec UK Special Situations or Anthony Cross and Julian Fosh’s Liontrust Special Situations, they are all down to the individuals concerned."
"While other people may be behind the scenes, in my estimations the performance has been down to the managers."
Cockerill points out that FE Alpha Manager Alexander Darwall is very much a bottom-up stockpicker who pays little attention to the macro picture, adding that his process would be difficult to replicate if he were to leave.
The strategy has worked wonders for Jupiter European: it is the fourth-best performing fund in the IMA Europe ex UK sector over 10 years and has beaten its benchmark by a large amount.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Cockerill says that even groups such as Fidelity that promote from within to make management transitions as smooth as possible are exposed to key man risk.
He points out that although Fidelity Special Situations may look the same for the first few months when Alex Wright takes over from Sanjeev Shah in January, that portfolio will change over time.
"Let’s just say I don’t think Sanjeev Shah will be buying anything Alex Wright doesn’t like now," he said.
Nevertheless, Cockerill says that investors should not be overly concerned about buying in to a manager instead of a fund.
"It’s a risk that we all take when we invest in funds, but it could be the case that the new manager comes in and is better. It is always a difficult decision," he added.
For those investors who want to minimise manager risk, there are funds out there where a rigid team process has been responsible for returns instead of the skill of an individual.
These funds should find it easier to maintain the same level of performance even if their managers leave. Haynes points to the five crown-rated Investec UK Smaller Companies fund as an example.
"Dan Hanbury had run the fund beforehand and had built up an excellent track record. He left to go to River & Mercantile and Philip Rodrigs has continued to perform well using the same process," Haynes said.
Hanbury managed the fund between 2001 and May 2006 using a bottom-up analysis approach. It was the fourth best-performing portfolio in the IMA UK Smaller Companies sector over that time, with returns of more than 100 per cent.
Since FE Alpha Manager Philip Rodrigs took over in June 2006, it has been the third-best performing fund in the sector, with returns of 162.19 per cent, and has easily outperformed its Numis Smaller Companies ex IT index benchmark.
Performance of fund vs sector and index since June 2006
Source: FE Analytics
Cockerill says that Newton is another example of a fund that favours a team-based approach.
"Newton, and to a lesser extent Threadneedle, are groups that place an emphasis on the team approach and take ideas from all of their analysts. They have co-managers who aren’t in the background but are actually out at the front so to speak," Cockerill said.
"At the end of the day, it is difficult to know how much a manager, the analysts or one or two individuals have in the way of input. But with Newton funds, if the manager were to leave, then the new manager would follow a very similar set of rules," he added.
One of the group’s best performing funds is the five crown-rated Newton Asian Income fund. The lead manager is Jason Pidcock and the deputy manager is Caroline Keen.
The £4.1bn fund – which has a yield of 4.54 per cent – has been the second-best performing portfolio in the IMA Asia Pacific ex Japan sector over five years with returns of 202.14 per cent, beating the FTSE All Asia Pacific ex Japan index by more than 70 percentage points.
