Julie Dean (pictured) will soon be back in the IA UK All Companies sector when her TM Sanditon UK fund launches later this month and, as a manager, she has built a loyal investor base thanks to a successful long-term track record in charge of the Cazenove (now Schroder) UK Opportunities fund. 
Her new fund is to be run using the same ‘business cycle’ approach which gained all her plaudits in the first place.
FE data shows, for example, that Schroder UK Opps had been a top-decile performer during her 12-year tenure with returns of 313.72 per cent, beating the FTSE All Share by more than 120 percentage points in the process.
Performance of fund versus sector and index over manager tenure
Source: FE Analytics
It’s not a foregone conclusion that her new fund’s AUM surges straight away, though, as the “loyalty” of her investor base may have slightly wavered given the performance in her final few months on her old fund was uncharacteristically poor.
Thanks to a variety of possible factors – such as capacity constraints, a new working environment and stock specific issues – during Dean’s final year Schroder UK Opportunities had been one the worst performers in the sector with losses of 0.76 per cent in what had been a largely rising market.
Also, there is no doubt that investors have a huge variety of highly-rated managers to choose from in the UK growth space so if they are going to allocate to her new fund, they may have to trim down or dump another high quality portfolio.
Therefore, here we compare and contrast Dean’s soon to be launched vehicle with a fund which is fast becoming a darling of the sector (like Cazenove UK Opps had been a few years ago); namely CF Miton UK Value Opportunities.
It’s a good comparison given that the Miton fund, which is headed up by FE Alpha Manager George Godber and Georgina Hamilton, was turning in strong returns and gathering assets at a rate during a time that Schroder UK Opportunities was struggling.
In fact, when Dean announced her shock departure from Schroders in September last year, CF Miton UK Value Opportunities was one of the prime beneficiaries of her fund’s outflows.
According to FE Analytics, the now £277m Miton fund was launched in March 2013 (around the time Dean moved to Schroders following the group’s acquisition of Cazenove) and over that time it has been the second best performing fund in the sector with returns that are nearly triple that of the FTSE All Share.
Performance of fund versus sector and index since launch
Source: FE Analytics
Ben Willis, head of research at Whitechurch, was one such expert who sold his stake in Schroder UK Opps following Dean’s departure and moved to the CF Miton fund.
While not like-for-like replacements, Willis wanted multi-cap UK exposure and didn’t want to risk leaving his clients’ money with the Schroder fund – which is now managed by Matt Hudson and, at £690m, is now £1.4bn smaller than it was when Dean left.
How do the two funds differ?
Willis explains that the Miton fund is very much value driven thanks to Godber (pictured) and Hamilton’s approach, which was honed during their time running the FP Matterely Undervalued Assets fund. 
While the fund is genuinely all-cap, Willis points out that Godber and Hamilton have historically maintained a higher weighting to FTSE 250, Small Cap and AIM-listed stocks than they have held in the FTSE 100.
However, Willis points out that thanks to the managers’ very specific value style, CF Miton UK Value Opportunities has tended to protect far better on the downside than most would expect from mid and small-cap biased portfolio.
“They are value investors as they start with areas of the market which are cheaper than others. However, they then do their intrinsic research into a company’s reporting and accounts to assess how much its asset base is worth.”
“The way they explain it is by saying ‘we think this stock is worth £1, but given what its asset base is being priced at now, it is trading at 50p’. They aren’t just looking at out of favour companies and that is why the fund is called Value Opportunities.”
Willis says that as the managers buy companies which are already lowly valued but have inherent strengths (and are often small and relatively illiquid so most shareholders are forced to hold on to their investments during times of volatility) CF Miton UK Value Opps has tended to perform well in falling markets.
Though the fund hasn’t witnessed an out and out crash, FE data shows it has had the lowest maximum drawdown and the best risk-adjusted returns in the sector since its launch.
Dean’s approach to the market differs considerably, according to Willis.
Firstly, her funds have always tended to be FTSE 350-orientated. Secondly, as a result of her business cycle approach, the process for portfolio construction is far more driven by top-down factors compared to Godber and Hamilton’s more bottom-up analysis.
That is because Dean’s approach revolves around judging where she thinks we are in the cycle and then picking which companies are likely to do best in that environment. While valuations are important to her, they are not the be all and end all behind her stock decisions.
Dean put this process to excellent use during the period before, during and immediately after the financial crisis as she rotated her portfolio to large defensive companies in 2008 and then moved to into more economically sensitive stocks as the economy moved into a more expansionary phase.
In fact, her UK Opportunities fund was one of only two portfolios to beat the sector and index in each calendar year between 2008 and 2013.
Source: FE Analytics
However, this business cycle approach means that Dean’s portfolio turnover tends to be high as it means she has to trade relatively aggressive – which Willis says one of the major reasons she came unstuck in her final year at Schroder’s as her sizeable AUM diminished her liquidity.
Can Julie Dean do it again?
Willis is a firm believer that Dean didn’t turn into a bad fund manager and says investors must realise there were a host of issues which weighed on her highly-rated fund’s performance at the end of her tenure.
While there were instances of stock blow-ups, such as insurance companies at the time of last year’s changes to the pensions system, Willis argues that the fund was allowed to become too big at Schroders – especially as Cazenove had taken steps to limit flows prior to the acquisition.
Therefore, given she is now teamed up with her former Cazenove colleagues Tim Russell and Chris Rice at Sanditon and is likely to be running a far smaller pot of money, Willis expects TM Sanditon UK to make a name for itself.
“Yes, investors may be disappointed if they held on during her underperformance only for her to leave, but she is by no means a bad manager. Dean has a lot of skill and I’m sure she will adapt to her new environment.”
“She will have a lot more control at Sanditon and will have a lot more autonomy over her new fund. She will also have a stake in the business and one of the problems of joining a massive organisation is that there is a lot of red tape – so she is free of all that.”
“I wouldn’t be surprised at all if the fund got off to a very good start and attracted a lot of money.”
So what should investors do?
Willis says he will be sticking with the Miton fund for now, but isn’t ruling out turning back to Julie Dean at some stage in the future.
He also says his decision reflects what he is looking for in a fund for his UK exposure, as he is a firm believer that every fund should play a certain role within an investor’s portfolio.
For example, he says CF Miton UK Value Opportunities should never be used as a core UK fund – given its bias towards smaller companies – and should therefore be used as a holding to sit alongside more defensive large-cap names like CF Woodford Equity Income or Invesco Perpetual High Income.
While Miton has been very open in terms of capacity limits on its funds, Willis also warns that investors should keep a close eye on the fund’s AUM – which rocketed over recent years – as there is no reason why Godber and Hamilton won’t become hindered by size constraints like Dean did.
He says, however, that if investors are relatively high risk then TM Sanditon UK is likely to be suitable core fund. Either way though, Willis says investors are in safe hands with either Dean’s new fund or CF Miton UK Value Opportunities.