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Mass outflows hit BlackRock UK Special Sits: Is it time to sell or buy back in?

30 October 2014

The fund has lagged behind its peers in recent years and suffered significant outflows over the past eight months.

By Daniel Lanyon,

Reporter, FE Trustnet

Vast outflows from the BlackRock UK Special Situations fund and a torrid year of performance have seen the fund diminish in size by almost £800m since March 2014.

The period coincides with the six-month sabbatical of FE Alpha Manager Richard Plackett (pictured), who has run the fund since 2004 and recently returned to join co-manager Roland Arnold, who headed up the fund during Plackett’s leave of absence.

ALT_TAG Data from FE Analytics shows the fund lost almost 40 per cent of its size between the end of February and October 2014, the period spanning the announcement of Plackett’s sabbatical and his recent return.

As the graph below shows, the total assets of the fund have fallen from £2.2bn at the end of February to £1.4bn at the end of October, which is the most recently available data.

Historical size of fund since Nov 2011


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Source: FE Analytics


While this figure represents a total decline of 35.54 per cent, some of this is certainly due to the fall in the value of the fund’s underlying assets – which have lost 12.37 per cent over this period from the point of total return.

Performance of fund since 21 February 2014

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Source: FE Analytics

However, a significant portion of the erosion of the fund’s size is due to outflows of several hundred million pounds suggesting investors took the temporary departure of Plackett as a sell signal.

The graph also shows that, at least over the past three years of its history, outflows of this scale are unprecedented for the fund relative its size.

One of the biggest concerns for investors and fund pickers is that the rapid inflows into multi-billion pound funds create the potential for liquidity problems, particularly when redemptions start to rise.

Ben Willis, head of research at Whitechurch Securities, says the investment industry has traditionally taken the news of a sabbatical from a high profile fund manager such as Plackett as a sign they were very unlikely to return, triggering a sell signal.

“One of the only examples I can think of a high profile manager returning from a sabbatical is Baillie Gifford’s James Anderson and so I can understand if investors sell out of fund [at the news of a sabbatical] as dealing with redemptions in a large fund such as this can mean being a forced seller, which is never good,” Willis said.

IBOSS’ managing director Chris Metcalfe started reducing his holdings in the fund following large inflows last year and the news that Plackett had taken on a deputy then sold out completely when the manager took his sabbatical.

“We sold out on the back of fund flows – it was getting big at the time and we get really nervous when a co-manager comes in because it becomes unclear who is running the money,” Metcalfe said.

“The performance since then has been pretty dire and so it has felt liked the right thing to have done. Investors are at extra risk when they can’t see who is running the money.”

Metcalfe says he would consider buying back in after clarification of Plackett’s role in the fund.

“It goes back to what else is available in the IMA All Companies sector but we would have to sit down with the manager and see whether it is a Richard Plackett focus. It is very difficult to see that from the outside and there are plenty of other goods funds in the space.”

The fund has performed well over the longer term and is top quartile in the IMA UK All Companies sector since Plackett took over the fund in June 2004, making it the 24th best performer in the sector over this period with a return of 173.24 per cent.

By comparison the average fund in the sector has returned 115.84 per cent and the FTSE All Share has gained 121.69 per cent.

Performance of fund, sector and index since June 2004

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Source: FE Analytics

Before the fund took its recent hit, it was in the top decile of the sector but its losses over the course of the year make it one of the worst performers in the peer group in 2014.

The BlackRock UK Special Situations fund is not the only UK equity fund to see large outflows of late. In fact, as a recent FE Trustnet article highlighted, investors have hauled a record amount of money from UK equity funds over the past month.

Ben Williams, investment manager at Saunderson House, says in general but also specifically to Blackrock UK Special Situations, investors may be acting too quickly to jettison holdings.

He suggests it now is not the time to be selling the fund.

“Every good fund manager goes through periods of under performance and it’s usually the best time to buy them during these periods not when they’re ‘top of the pops’ and first quartile over one, three and five years.”

“We rate Plackett, Roland Arnold and the team as one of the best in the UK All Companies sector and expect performance to improve as investors rotate towards the typical high quality, structural growth stocks they invest in.”

“Hopefully Plackett will come back with some fresh ideas after his sabbatical, while he no longer has the responsibility of managing the team allowing him to concentrate fully all his time on turning round performance.”

A spokeswoman for BlackRock said while changes have recently been made to the style of the fund they have not been driven by the recent outflows.

“Changes to the portfolio have been made in response to the rapidly shifting inflation and interest rate environment, and some holdings have been added in the FTSE 100 where we see selective valve amongst some of the more defensive names, particularly amongst dollar earners,” BlackRock said.

“The overall investment policy of the fund is unchanged and the long-term track record since Richard took over the fund in 2004 remains very strong. Any changes have been investment-led not in relation to the size of the fund or flows.”

“We are pleased that Richard has returned from his sabbatical and he resumed his role as co-manager of the BlackRock UK Special Situations with Roland Arnold earlier this month.”

The fund has an ongoing charges figure [OCF] of 0.92 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.