Analysis from asset management group Aegon found several high-profile departures from some of the most well-known funds had little impact on overall returns.
There have been several high-profile changes at the top for some of the most popular funds over the past year, mostly notably Neil Woodford’s move from Invesco Perpetual after several decades to start his own venture. Within weeks, billions of pounds had poured out of Invesco Perpetual funds.
Another example of a particularly well-known manager whose replacement continued to outperform is Richard Buxton.
The manager left Schroder UK Alpha Plus after 10 years to run Old Mutual UK Alpha. His high conviction and often contrarian approach meant the fund beat its benchmark by an annualised rate of 4.1 per cent over his tenure.
The total return from the fund over this period was 242.66 per cent, while the FTSE All Share gained 129.3 per cent.
Performance of fund vs sector and index June 2002 to May 2013
Source: FE Analytics
Since Buxton's departure, both his old and new funds have outperformed the IMA UK All Companies sector average as well as their benchmark, the FTSE All Share.
Performance of funds vs sector and index since June 2013
Source: FE Analytics
Despite the recent good performance of the Schroders fund, data from FE Analytics shows that investors have decided to pull their money out of it. Its AUM prior to Buxton’s departure was £3.6bn - it now stands at £1.6bn.
Another example is the retirement of Anthony Bolton from Fidelity Special Situations in 2008. Replacement managers Sanjeev Shah and Alex Wright continued to outperform their benchmark, albeit at a lower rate.
However, the report admits that the trend is not without exception. It cites the examples of the Fidelity European and Jupiter Financial Opportunities funds, which both began to underperform their benchmark following their manager's departure.
The report also omits the potential disaster that can occur from a key manager leaving, which is still fresh in the minds of previous investors in Gartmore and New Star.
Gartmore’s share price tanked and its funds saw billions of pounds in redemptions following the news that star manager Roger Guy was retiring on the same day the company’s chief Dominic Rossi moved to Fidelity in 2010.
In an article last year, Bestinvest’s Jason Hollands told FE Trustnet that investors should be careful of taking on star manager risk within their portfolios.
“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," Hollands said.
While Killik’s Gordon Smith admits a manager’s departure can create issues, he says investors need to look at each fund on a case-by-case basis instead of being too hasty.
“First of all, you need to remind yourself why you bought the fund in the first place: was it for the manager’s track record, for example? You need to know if there is a good succession strategy and a new manager in place and whether the new manager is going to make wholesale changes,” he said.
“In a lot of the cases, there has been a style or philosophy change, so you need to bear this in mind.”
“With an open-ended fund, you’re not so affected by redemptions as in a closed-ended fund where shareholders selling off may cause an investment trust to move to a discount.”
“One of the potential negatives is the fund sees consistent outflows for months on end, which may not be entirely a good environment to manage it in.”
The report attributes the continuation of outperformance to the residual culture left at a firm post-handover.
“Star managers are not islands – they are supported by a team of analysts originating ideas and technical valuations. Such teams often remain in place after a star’s departure. Firms take trouble to mentor younger talent and create tomorrow’s stars,” its authors said.
“Firms also have other attributes which sustain after a manager’s exit: investment philosophy, process and global research and ideas.”
“Where entire investment teams do leave, firms have every incentive to replace them with top manager talent.”
Nick Dixon, investment director at Aegon, says the analysis provided a wakeup call for investors.
“So-called star managers frequently rely on the ideas and technical analyses of their wider team, who will have been mentored and developed by the star to continue their legacy and investment process after their departure,” he said.
“Resist the urge to jump ship when a star manager departs and think hard about the full costs of moving your money; potential fees, out of market risk, and missing likely gains from your existing fund can all quickly add up. Often the wisest move may be to stay put.”
