But while groups will usually stick by their managers, if the fund’s underperformance is costing their business, they can look to remove the fund’s key trigger-pullers akin to despotic football chairman.
On the other hand, fund managers can decide that after a period of lacklustre returns it is the right time to move firms or just retire altogether.
Either way, the pressure is always on the new manager as they will want to restructure the portfolio to their liking, reassure existing unitholders they are right person for the job and attract inflows via outperformance to keep their employers and investors happy.
Of course, there have been some big disappointments in the past, but in this article we look at five examples when a manager has taken on a struggling fund and drastically improved performance.
John Bennett & Henderson European Focus
First on the list is FE Alpha Manager John Bennett, who moved across to Henderson in 2010 following the group’s acquisition of Gartmore.
The director of European equities took on a number of funds when he joined Henderson, but one which had gone through a very tough patch was the European Focus fund, which had been under the stewardship of Stephen Jones.
According to FE Analytics, before Bennett was named on the fund February 2010 it had posted bottom quartile returns and underperformed its FTSE Europe ex UK benchmark in 2006, 2007, 2008 and 2009 – which included both rising and falling markets.
It meant the fund had been the third worst performing portfolio in IA Europe ex UK over the five years prior to Bennett taking charge.
However, since then and as a recent FE Trustnet article highlighted, the now five crown-rated portfolio has outperformed the sector and index in every calendar year, sitting in the top quartile in 2010, 2011, 2012 and 2014.
Source: FE Analytics
All told, it means the fund, which is a contrarian and concentrated vehicle, has been the third best performing portfolio in the 90-strong sector over that time with returns of 83.68 per cent, more than doubling the returns of its benchmark.
Martin Cholwill & Royal London UK Equity Income
Given the recent strong performance of five crown-rated Royal London UK Equity Income fund and as Martin Cholwill has run the portfolio for nearly 10 years now, it’s not a fund that many would describe as a classic turnaround story.
However, Equilibrium’s Mike Deverell says investors should remember that Cholwill was taking on a £200m fund which between 2000 and 2005 was a bottom quartile performer in the IA UK Equity Income sector with losses of 2.8 per cent while the sector average was up 15.81 per cent.
Though it had outperformed the FTSE All Share over that cumulative period, the now £1.6bn fund, which had been managed by Bradley Mitchell, underperformed the sector in four out of five of those calendar years.
Cholwill moved to Royal London from AXA Investment Managers in February 2005 and regular readers will no doubt know that the fund’s performance has improved significantly.
Our data shows that Royal London UK Equity Income has been the sector’s second best performing portfolio since Cholwill has run it, returning 159.43 per cent to investors and beating the index by more than 50 percentage points.
Performance of fund versus sector and index since Mar 2005
Source: FE Analytics
However, it is the consistency of those returns which is the most impressive part.
According to FE Analytics, the FTSE 350 fund has outperformed the index in all but one year since Cholwill took charge and has never posted a year’s underperformance relative to sector over that time, including top quartile returns in 2006, 2010, 2012, 2013 and 2014.
Steve Davies & Jupiter Undervalued Assets
The longer term performance of the £120m Jupiter Undervalued Assets fund may put many investors off, given that it is bottom quartile over 10 years with returns of 86.78 per cent, underperforming the FTSE All Share by close to 30 percentage points.
However, it is becoming gradually more popular thanks largely to its new manager Steve Davies, who took over the portfolio from Patrick Harrington in January 2012.
Rob Morgan, pensions and investment analyst at Charles Stanley Direct, says it is a “classic” example of a turnaround story given that Jupiter Undervalued Assets had only outperformed the sector and index in one of the previous seven years.
It was third quartile in 2010 and bottom quartile in 2005, 2007, 2008, 2009 and 2011.
Since Davies has been at the helm, it has been a very different story. With his value approach to investing whereby he focuses on out-of-favour companies, Davies turned in fund’s first top quartile year in close to a decade in 2012 and outperformed again in the strongly rising market of 2013.
On top of that, Davies proved he was no one-trick pony in the difficult market of 2014 when his fund delivered 7 per cent return compared to the index’s miniscule gain of 1.2 per cent.
Performance of fund versus sector and index since Jan 2012
Source: FE Analytics
Those returns mean the fund is now top decile since Davies took charge with gains of 71.08 per cent and it’s up nearly twice as much as the wider UK market over that time.
Mark Wharrier & Blackrock UK Income
Another recent turnaround story is Blackrock UK Income, which has significantly climbed up the performance tables since Mark Wharrier joined Adam Avigdori in November 2013 and changed the fund’s process.
As a 2014 FE Trustnet study highlighted, the now £350m fund is one of only two portfolios in the IA UK Equity Income sector to have increased its dividend in each of the last seven years but Ben Conway, fund manager at Hawksmoor, says that was one of the only positives about Blackrock UK Income’s long-term track record.
In the five years prior to Wharrier’s appointment, the fund had been a bottom decile performer in the sector with returns of 41.52 per cent, falling short of its benchmark by close to 20 percentage points.
Money was pouring out of the fund as the current AUM is roughly half what it was three years ago.
Conway says the new manager restructured the portfolio, ditching its previous barbell approach of high and low yielders and rotating it towards a concentrated portfolio of top quality franchises which have to generate free cash flow yield of 5 per cent.
Conway describes the turnaround since the changes as “absolutely miraculous”.
Performance of fund versus sector and index since Nov 2013
Source: FE Analytics
While it has only been a short period of time, Blackrock UK Income has been top decile since Wharrier joined as co-manager as it has returned 15.13 per cent, nearly trebling the gains of its benchmark.
Paul Spencer and Richard Bullas & Franklin UK Smaller Companies
And last but, by no means least, is Franklin UK Smaller Companies as Premier’s Simon-Evan Cook says the work put in by new-co managers Richard Bullas and FE Alpha Manager Paul Spencer is worth noting.
The now £130m fund had been run by Stuart Sharp between 1995 and June 2012, but had gone through a quite extended period of underperformance, having failed to beat the IA UK Smaller Companies sector and its Numis Smaller Companies ex IT sector in five of the previous eight calendar years.
Over the 10 years prior to Bullas and Spencer taking charge in June 2012, it had been the sector’s worst performing portfolio with returns of 51.94 per cent. As a point of comparison, the index was up 156.41 per cent.
However, as an FE Trustnet article highlighted in May 2013, Bullas and Spencer made a number of changes to the portfolio, such as removing 33 holdings in the space of weeks, eradicating out-of-favour mining stocks and opting for a highly concentrated mix of growth and value companies.
Performance of fund versus sector and index since June 2012
Source: FE Analytics
FE data shows that since the two managers took charge, Franklin UK Smaller Companies has been top quartile with returns of 67.71 per cent and has comfortably beaten its benchmark.
It was top quartile in the strongly rising market of 2013 with returns of 51.69 per cent and limited losses to just 0.35 per cent in last year’s falling market, placing it in the second quartile.
