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Buy, hold or sell: What should you do with Schroder UK Opps now Julie Dean has left?

11 September 2014

Julie Dean has left Schroders and Matt Hudson is now in charge of Schroder UK Opportunities, so we ask the experts whether investors in the fund should stick with it or look for other options.

By Alex Paget,

Senior Reporter, FE Trustnet

The major talking point in the fund management industry this week has been Julie Dean’s shock departure from Schroders.

FE Alpha Manager Dean's Schroder UK Opportunities fund has bulit up a large investor following after beating the sector and index by a considerable distance over the longer-term.

The four crown-rated fund has been a top decile performer in the highly competitive IMA UK All Companies sector since Dean took over in December 2002, with returns of 308.95 per cent.

Its FTSE All Share benchmark has gained 189.33 per cent over this period.

Performance of fund vs sector and index since Dec 2002


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Source: FE Analytics

The fund has turned in top decile returns and comfortably beaten the index over three-, five-, seven- and 10-year timeframes.

ALT_TAG Schroders gave no explanation for Dean’s departure, simply stating that Matt Hudson, who follows the same business cycle investment approach as Dean on his top-performing Schroder UK Alpha Income fund, will take over her portfolio.

However, given that Dean (pictured) has only worked at Schroders for the last year or so following its acquisition of Cazenove last spring, the timing does seem odd.

So what should investors in her fund do? Patrick Connolly, head of communications at Chase de Vere, is keeping hold of the fund in his portfolios and he recommends that fellow unit-holders do the same thing.

“We are keeping the Schroder UK Opportunities fund, although we aren’t adding any more to it for the time being,” he said.

“It’s not an unusual decision for us to do that, to move it from a 'buy' to a 'hold' when a manager leaves because it gives us time to reassess.”

However, the major concern that some investors and FE Trustnet readers have pointed to has been the recent poor performance of Schroder UK Opps.


The fund had been a consistent outperformer, comfortably beating the sector and index in each year between 2008 and 2012, all of which were very different markets.

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Source: FE Analytics

The fund was also top quartile in 2013, but those relative returns have dropped off significantly more recently.

Our data shows that over the last 12 months, Schroder UK Opps has lost 2.85 per cent while the FTSE All Share has returned 8.18 per cent; this makes it the sector’s third-worst performer over that period.

Performance of fund vs sector and index over 1yr

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Source: FE Analytics

One year is clearly a very short amount of time in which to judge a manager, but some critics say the massive growth in the fund’s AUM meant a prolonged period of underperformance was inevitable.

Our data shows Schroder UK Opps was £165m in size this time three years ago. It now weighs in at more than £2bn, having peaked at £2.8bn earlier this year.

Given that Dean built up her strong long-term track record with a much smaller pot of money, those fears seem warranted.

Although there are UK equity funds that are much bigger than Schroder UK Opps, those who fear it has become too big say the fund's business-cycle approach means Dean, and now Hudson, will tend to have a high turnover rate as they try to chop and change their holdings to reflect which stage the cycle is at.

Therefore, as the fund becomes larger, it becomes harder to move assests around quickly and efficiently.

Connolly doesn’t think size is an issue, however.

“Funds will always go through periods of underperformance, but it is much easier when a fund is bigger and it underperforms to say that it is because of its size. We aren’t overly concerned about its size and though we would be if it were to get much bigger, at the moment we are OK with it,” Connolly said.

Dean herself told FE Trustnet earlier this year that the recent poor performance was not because of size, but stock specific issues and an overweight position in mid caps.


It’s not like it hasn’t struggled at times in the past either, as although the fund has considerably outperformed over the long-term, it failed to beat the index in 2004, 2005, 2006 and 2007.

Schroder UK Opps sits on the FE Select 100 and analyst Amandine Thierree says that it will stay there for the time being. However, she says that Dean’s departure is a concern.

“Following the announcement yesterday that Julie Dean has left Schroders with immediate effect, we have conducted a preliminary review of the Schroder UK Opportunities fund,” Thierree said.

“Currently Matt Hudson runs Schroder UK Alpha Income, which has a different objective and bias to the UK Opportunities fund. A key concern of ours is whether the business cycle approach established by Julie Dean and Chris Rice – who now works at Sanditon AM – will be adversely affected by the loss of its architects.”

She added: “In the short-term we do not believe that there is an immediate risk to the fund, in terms of changes to the portfolio. Over the medium to longer term there are questions that need to be answered.”

Connolly says that although Dean and Rice have left, their team which helped implement the strategy are still there.

“When a manager leaves, you need to see how much of an influence they have had on performance as sometimes, although they are the figurehead, it may be much more of a team approach. Although Dean has gone, the team is still very much there.”

“If members of that team were to leave, though, then we would probably move it from a 'hold' to a 'sell' rating.”

Hudson launched his five crown-rated Schroder UK Alpha Income fund in May 2005, over which time it has been a top quartile performer in the IMA UK Equity Income sector with returns of 127.39 per cent, beating its FTSE All Share benchmark by more than 20 percentage points.

Performance of fund vs sector and index since May 2005

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Source: FE Analytics

The £850m fund boasts top quartile returns over three, five and seven years as well.

Like Schroder UK Opps, Hudson’s fund has also dropped into the bottom quartile and underperformed against its benchmark over 12 months, adding weight to the suggestion that the investment approach, not the fund’s size, has been the major reason for Dean’s lacklustre returns.


Mike Deverell, investment manager at Equilibrium, says this could be the biggest issue of all.

“Their business cycle approach is an interesting strategy, but I think it is slightly more difficult to implement now,” he said.

“Their strategy is based around finding the companies that are best suited to which stage of the cycle we are in, but as we have seen such huge amounts of central bank intervention, it seems that everything is being propped up by QE and very low interest rates.”

He added: “We like managers to have a process and to stick to it, but we also like them to keep reassessing them to make sure they are still working.”

Schroder UK Opps has an ongoing charges figure (OCF) of 0.91 per cent.


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