Investors should avoid any knee-jerk reactions following the departure of Angus Tulloch (pictured), David Gait and Jonathan Asante from their manager positions, according to several investment professionals. 
It was announced this morning that Stewart Investors – the Edinburgh-based arm of First State Stewart – would undergo a management overhaul as part of a series of changes that are set to be completed by 1 July next year.
According to the firm, the changes will be initiated in order to “broaden responsibilities across the team”, and are part of a continuous focus on transparent succession planning.
The news is particularly significant due to the managers’ impressive long-term track records and significant popularity, which has been demonstrated by the soft closure of Tulloch’s Stewart Investors (formerly First State) Asia Pacific Leaders fund in 2012, which followed on from the soft closure of a number of other First State GEM and Asia Pacific funds the previous year.
Star manager Angus Tulloch, who has co-managed Stewart Investors Asia Pacific and Stewart Investors Asia Pacific Leaders since 1988 and 2003 respectively, has a stellar track record and has outperformed his peer group composite by more than double since the turn of the millennium, according to data from FE Analytics.
Performance of manager vs composite since 2000
Source: FE Analytics
While our data only stretches back to 1995, the five FE Crown-rated Asia Pacific fund has returned 606.06 per cent compared to its sector average of 233.18 per cent, while the Asia Pacific Leaders fund, which has four FE crowns, has returned 380.42 per cent since launch compared to its sector average of 211.72 per cent.
Asante has also managed to outperform his peer group composite by a third, with his five FE Crown-rated Stewart Investors Global Emerging Markets Leaders fund more than doubling the MSCI Emerging Markets benchmark over his seven-year tenure.
Performance of fund vs sector and benchmark over management tenure
Source: FE Analytics
Now though, David Gait and Sashi Reddy will take over Stewart Investors Asia Pacific Leaders Fund, a sub-fund of First State Investments ICVC, and the First State Investments Asia Pacific Leaders Fund (Delaware Statutory Trust).
Asante’s GEM funds will all be managed by Ashish Swarup and Tom Prew, while the Stewart Investors MPF Global Equity fund and the Colonial First State Wholesale Worldwide Leaders fund will be handed over to Sashi Reddy and the sustainable funds team.
Despite First State’s stellar long-term track record though, many investors have been unnerved by these new management movements.
Darius McDermott, managing director of Chelsea Financial Services, says that Fund Calibre, the ratings area of the company, has removed its Elite Rating from Stewart Investors Global Emerging Market Leaders, Stewart Investors Asia Pacific Leaders and First State Latin America following the reshuffle.
“This is very unsettling for investors. The teams have only recently been split into two and now we have some substantial changes with some very experienced lead managers now taking a back seat,” he said.
“We fully appreciate that the investment style and philosophy of the funds will not be changing, and they have a team-based process, but all managers do things slightly differently. Ashish Swarup has been doing some good work behind the scenes since his arrival from Fidelity, and we like the work Tom Prew did with the Latin America fund, but they will have something to prove.”
McDermott is more comfortable with the change in management on the Asia Pacific Leaders fund, however, as new co-manager David Gait has a strong long-term track record over his tenure of the Stewart Investors Asia Pacific Sustainability fund.
Simon Evan-Cook, multi-asset fund manager at Premier, is also relaxed in terms of Tulloch’s repositioning and would be happy to hold all of his funds once he has stepped down.
“My initial thoughts are that investors should probably do nothing because I’ve been lucky enough to meet with Angus and his team quite a bit, and I would say that out of all the teams I’ve met in the industry, they have probably put the most thought into session planning and genuine building of a talented and diverse team,” he said.
“As a holder of that fund, I would be very comfortable that it’s going to be in good hands going forward.”
Premier is currently not invested in the funds at the moment due to their sizes - Tulloch’s Asia Pacific Leaders fund, for instance, is more than £8bn. While Evan-Cook stresses that the funds aren’t necessarily too large, he believes there are more “ideally-sized” funds that adopt a similar investment technique.
While he hasn’t spent as much time speaking with Jonathan Asante, he says he is sure that investors shouldn’t panic about holding his funds either.
“It’s very much a cultural thing with that firm and that they’ve always made sure they’ve got the strength and depth required, and that all members of the team are genuinely involved with making decisions within the funds,” he added.
Jason Hollands, managing director of Tilney Bestinvest, agrees that there is a genuine team-based approach at Stewart Investments and so investors shouldn’t make any knee-jerk reactions. He also says that the management changes seem to be a follow-on from the wider restructuring of the business, as the Asia-based and Edinburgh-based teams at Stewart First State were divided into two this year to cope with the company’s large size.
“The thing to bear in mind is that the approach has always been team-based, despite Tulloch being the towering presence. He’s not disappearing into the sunset, they’ve made it clear that once the transition period is over he’ll remain a part of the investment team, so it seems to be very much about meticulous, long-term succession planning,” Hollands said.
“Our snap view on this is that there’s no need for a knee-jerk reaction - this looks to be part of a well thought through process following on from a restructure of the business and it doesn’t raise any undue concerns with us.”
“The track record of the funds has been very good, particularly over the recent period of volatility as the managers are inherently quite cautious investors. That has served them very well this year which has been an extremely tough year for Asian markets.”
Performance indices in 2015
Source: FE Analytics
Hargreaves Lansdown’s Laith Khalaf also believes that investors need to consider the firm’s changes as a whole and the funds have strong overall teams. What’s more, he adds that the funds’ soft-closures mean investors should be even more careful before selling, as it will of course be harder to buy back into them.
“The fact they’re soft-closed has been a mark of their success, really. There are still funds that are open that give you exposure to similar strategies, so I think there is a decision there to make but I think it’s important not to make any snap decisions without looking at what is actually going to change,” he said.
“Clearly there are a number of titles that are changing and a number of roles that are changing, but it’s important to look into what contribution is going to be made by each member of the team.”
Martin Bamford, chartered financial planner and managing director of Informed Choice, says that any fund manager change should prompt investors to review holdings and he is already scheduled to do this next month as part of the company’s annual fund review cycle.
“This is a significant change of management at Stewart Investors which is likely to have consequences for investors and advisers and we hold the Stewart Investors Asia Pacific Leaders Fund within our client portfolios, holding around £6m of client assets in this fund,” he said.
“Looking at the replacement managers for this fund; David Gait has a consistently good performance track record, only slightly behind Angus Tulloch over the past year and leading his performance in the Asia Pacific excluding Japan sector by a considerable margin over the past five years, where he is the top performing manager in this sector. Sashi Reddy has an equally impressive long-term track record in the Indian sector.”
“The change to a sustainability strategy is probably more significant than the fund manager change in respect of the Asia Pacific Leaders fund. Investors will need to consider whether this is their preferred strategy within the sector or whether an alternative fund provider offers a better prospect for returns in the future.”
However, for those investors who are slightly unnerved about the changes or simply want to look at other options in the space, in the next article today we look at five possible alternatives to Tulloch and Asante’s funds.
