AXA’s Nigel Thomas (pictured), Investec's Alastair Mundy and Schroders’ Andy Brough are some of the longstanding managers that have demonstrated the importance of experience when it comes to UK growth investing. 
Having a long tenure on a fund is seen as a good attribute, offering investors a comforting sense of continuity and the feeling that the manager is dedicated to the portfolio. While tenures seem to be shrinking, there are a number of highly rated managers who have run the same fund for a decade or more.
In contrast, the departure of a manager from a portfolio often causes investors to sell their holdings to follow them to a new home or seek opportunities elsewhere. There’s also scope for a period of underperformance after the new manager joins and attempts to turn the portfolio around to their own views.
Multiple changes to the management of a portfolio can often make the problem worse, leading to confusion over the exact approach being used on the fund and creating a reluctance among investors to put their money into it.
With this in mind, we created a portfolio of all the active funds in the IA UK All Companies sector that have had the same manager at the helm for the past 10 years or more, to see how they have performed against their average peer.
As you can see from the below graph, the average longstanding UK growth manager has significantly outperformed the IA UK All Companies sector over the past decade, with a 116.13 per cent total return outpacing the sector average by around 20 percentage points.
Performance of portfolio vs sector over 10 years
Source: FE Analytics
It’s not just over the long term that these managers have tended to outperform. Our data shows they have also beaten their average peer over one, three and five years, adding around one extra percentage point of return a year.
Adrian Lowcock, head of investing at AXA Wealth, said: “Experience is a critical part of fund management and managers who have seen the widest variety of market conditions and changes are able to add a lot of value.”
“Whilst some exceptional managers have moved around, many of them have long careers with the same employer. Investing in an established name gives you access to a proven investment process and stable robust team which have a good understanding of how they work with each other.”
“The key, though, is to ensure that these managers still have the appetite to manage money, are continually reviewing their processes and are able to recognise and learn from their mistakes. Good managers are still fresh and motivated even if they have been in the role for 10 years with the same company.”
Meera Hearnden, senior investment manager at Parmenion, agrees that experience can be a good trait in a fund manager, but only when they have proven themselves able to add value in varying market conditions.
“One of the things we look for in experienced managers is how they have fared during ‘down’ periods in markets. This is when we feel their skills and processes are truly tested,” she said.
“Managers who can hold their own during down periods such as 2008’s financial crisis or 2011’s European debt crisis should not be ignored. If their process stands the test of time during these periods, that must say something positive about that manager.”
According to FE Analytics, SJP UK High Income – which has been run by FE Alpha Manager Neil Woodford since October 2001 – was the sector’s best performer in both 2008 and 2011. However, it must be noted that the fund was a member of the IA UK Equity Income sector in both these years – in which it still outperformed.
Performance of fund vs sectors and index over 10 years
Source: FE Analytics
Alastair Mundy’s Investec UK Special Situations and the team-managed Majedie UK Equity funds also outperformed significantly in 2008; during 2011 Ciaran Mallon’s Invesco Perpetual Income & Growth and Mark Slater’s MFM Slater Growth were the only funds aside from SJP UK High Income to post positive returns.
However, the average longstanding manager only outperformed the sector by 73 basis points in 2008 and by 53 basis points in 2011. Despite her preference for managers that do well in falling markets, Hearnden concedes that some have made their name by gaining strongly when markets are rising.
“There are experienced managers that go through periods of underperformance, but if they more than make up for this weak performance subsequently, surely they are worth consideration following further due diligence,” she added.
Not all fund pickers are convinced by the merits of holding experienced managers. Lowcock considers it wise to have a mix of both fund stalwarts and ‘rising stars’ in a portfolio, as the younger fund managers could eventually replace the more established names.
Lucy Walker, a multi-manager at Sarasin & Partners, told us earlier this year that experience could even count against a fund manager if they become too stuck in their ways.
“We do think experience is really important but we also think it should be viewed in context. A study in 2009 found that in your early years, unsurprisingly, experience tends to increase substantially but then tends to plateau out over later years,” Walker said.
“If we look at performance, it tends to do the same – it tracks experience in the early years, plateaus out and then tends to decrease. This was found to be down to managers getting quite stuck in their ways. Although we do think experience is important, remember it’s not the only important thing and can work to your detriment in certain circumstances.”
As is to be expected, not all of the funds with the same manager at the helm for the long term are at the top of the sector.
When it comes to those with the some of the best track records, MFM Slater Growth, Majedie UK Focus, Allianz UK Mid Cap, Kames Ethical Equity, Schroder UK Mid 250 and CIS Sustainable Leaders are the funds that are currently first quartile over one, three, five and 10-year periods.
Performance of funds vs sector over 10 years
Source: FE Analytics
However, there are a number that have underperformed their average peer over these time frames.
MFM UK Primary Opportunities, for example, sits in the fourth quartile over three, five and 10 years. Meanwhile, Sovereign Ethical, Marks & Spencer UK Select Portfolio, Scottish Widows Multi-Manager UK Equity Growth and Scottish Mutual UK Equity are examples of funds that are in the bottom quartile over the past decade and the third quartile over one, three and five years.
In a coming article, FE Trustnet will look at the longstanding managers in the Investment Association universe that have handed their investors the most attractive returns.
