Coombs, head of multi-asset investments, recently told FE Trustnet that we was focusing on alpha generating managers for his UK exposure as he is concerned that beta, or tracking the index, is expensive in the current environment.
He rates Dean (pictured) and thinks her business cycle approach will outperform over the long-term. However, he is using her closed-ended Schroder UK Growth trust instead of her five crown rated, but now £2.6bn, Schroder UK Opportunities OEIC because of liquidity concerns.
“We hold a significant amount in the Schroder UK Growth trust; in fact it is one of our biggest individual holdings,” he said. “We have held the investment trust when Richard Buxton was running it and yes, it is absolutely about liquidity. We would always, always buy an investment trust over an open-ended fund if there is a [like-for-like] choice.”
“All things being equal we prefer the closed-ended structure because it means that the manager isn’t being buffeted by inflows.”
Dean’s Schroder UK Opportunities fund has become very popular with investors, and for good reason.
According to FE Analytics, her fund has been the seventh best performing portfolio in the highly competitive IMA UK All Companies sector over 10 years with returns of 217.05 per cent, beating the FTSE All Share by more than 95 percentage points in the process.
Performance of fund versus sector and index over 10yrs
Source: FE Analytics
It also boasts top quartile returns – and has beaten its benchmark – over rolling three, five and seven year periods.
While performance has been good, the fund’s AUM has surged recently. Our data shows that the Schroder UK Opportunities was just £74.7m in size this time three years ago. That figure has now grown to £2.6bn.
The issue of how much a fund’s size impacts its performance has been hotly debated recently, and a number of investors, including many of our readers, have questioned whether the size of Dean's fund has contributed to it falling into the third quartile over the last 12 months.
Schroders has already taken steps to stem inflows into UK Opps, but Coombs says that he would be concerned if he was a unit-holder in the fund at its current size.
“That would be a real worry for me, so no, we don’t hold her open-ended fund,” Coombs added.
Rob Morgan, pensions and investment analyst at Charles Stanley Direct, rates Dean but says her approach of investing around the business cycle means she has a high portfolio turnover rate.
Dean told FE Trustnet this time last year that she is never concerned about having to chop and change her portfolio as she believes it gives her an advantage over traditional buy and hold managers.
Morgan agrees, but says that her approach is not conducive with running a very large fund.
“Julie Dean’s style is quite aggressive and she will make quite rapid, sudden and significant sector shifts. When you have a high turnover level like that, liquidity is a valid concern,” Morgan said.
“Having said that, she now primarily invests in large, liquid companies which means that she can genuinely manage a large fund. If, however, liquidity conditions were to change she might find it easier with her trust because it is smaller. It's structure ensures it is not going to be getting any bigger as she doesn’t have to worry about outflows or redemptions.”
He added: “That is the advantage of trusts, and with Dean’s very active style, I can see why people would want to use her trust instead of her fund.”
Dean took over her Schroder UK Growth trust from Richard Buxton in July last year, following the latter’s high profile move to Old Mutual.
Since Dean took over the investment trust, it has returned 12.14 per cent which is greater than the return of both the FTSE All Share and her open-ended fund.
Performance of fund and trust versus sector since July 2014
Source: FE Analytics
One the face of it, Dean’s trust and fund do look very similar.
The exact same stocks feature in both top-10 holdings and Dean has a very similar weighting to each of those companies in each of her portfolios. She also has very similar sector weightings, with both currently skewed towards services, industrials and financials.
Charles Cade, head of investment company research at Numis Securities, says the major difference between the two portfolios is that Dean has the ability to gear-up, or borrow, which will help her outperform in a rising market.
Schroder UK Growth currently has gearing of 8 per cent.
Cade, like Morgan and Coombs, rates Dean as a manager. Given that investors can buy her trust on a discount to NAV, he says opting for Schroder UK Growth IT is a no-brainer.
“Julie is a very interesting manager and the portfolio has undergone quite a lot of change since she took over from Richard Buxton. She has a very clear style and her long term performance has been very good,” Cade said.
“It would make sense to buy the trust as she runs them both in broadly the same way, but you are buying the trust on a discount.”
“No matter who the manager is, not having to deal with outflows always helps performance as they are able to trade whenever they want. Schroder UK Growth, at a discount of 4 per cent, is trading roughly in line with its 12 month average but it has traded on a premium in the past.”
He added: “I would have no concerns about buying it at its current discount.”
Schroder UK Growth has ongoing charges 0.86 per cent.