Both Old Mutual’s Richard Buxton and Investec’s Alastair Mundy have strong long term track records on their respective £2.3bn Old Mutual UK Alpha and £1bn Investec UK Special Situations funds but their more recent performance has been testing for their underlying investors.
Both sit in the bottom decile of the IA UK All Companies in 2015, having lost 5.58 per cent and 4.06 per cent while the FTSE All Share has fallen just 1.15 per cent and the average fund in the sector has returned 1.83 per cent.
They are also behind the sector average over one and three years while Mundy (pictured) is behind over five years and Buxton is only just ahead by a percentage point or so.
Performance of funds, sector and index over five years
Source: FE Analytics
There are a number of reasons for a shift in performance of fund managers from their particular style falling out of favour, swelling assets under management or just because they bought and/or sold the wrong stocks at the wrong time.
Chelsea Financial’s Darius McDermott says while the two fund managers have differing styles with Buxton a more pure value orientated manager and Mundy value/contrarian, both have seen their strategies fall hugely out of favour recently.
“All fund managers have periods where there style or some of the decisions are early, but both have very good long term track records,” he said.
“Mundy is looking for stuff that everybody else hates. Buxton is looking for decent valued businesses that he thinks are going to go up. However, Buxton is favouring some of the most contrarian parts of the market at the moment i.e the real mega caps.”
“This is where he is seeing the most value. I would suggest this has lead them both to similar sectors at the moment.”
It has been a difficult time for value investing across the world, as cheap areas of the market (such as oil, mining, industrials and banks) have become even cheaper in 2015 thanks to falling commodity prices, China’s slowdown and other macroeconomic headwinds.
On the other hand, growth companies have gone from strength to strength as investors have only felt comfortable holding perceived ‘safer’ names.
Performance of indices over 2yrs
Source: FE Analytics
Both portfolios, for example, have their largest overweight to financials with just over a quarter of the assets in the sector – an area which has enjoyed a good period of late.
Mundy defines an out of favour stock as one that has fallen at least 50 per cent from its peak over the last seven years, excluding the last two years and this has also led him to have over 10 per cent in oil firms BP and Shell.
“They are also reasonably concentrated funds. Mundy has 50 per cent in his top 10: that is pretty concentrated,” McDermott continued.
“Buxton is always either fourth or first quartile whereas Mundy has had a difficult time for a few years now. However they both retain our support and I argue it is exactly the time to look at these funds – after a period of underperformance”
Buxton has managed the Old Mutual UK Alpha fund since December 2009, at first on a sub-advised basis while a manager at rival Schroders before joining Old Mutual Global Investors as head of UK equities in June 2013. He was recently promoted to chief executive.
Since he took over the fund in 2009 it has returned 75.43 per cent, outperforming the IA UK All Companies sector average of 66.82 per cent and the FTSE All Share’s 52.95 per cent gain. As you can see though, his outperformance has been eaten away thanks to the events of the past 12 months or so.
Performance of fund, sector and index under Buxton
Source: FE Analytics
He is still one of the most popular and highly regarded managers in the UK equity space despite several professional fund pickers expressing concern at his dual role as fund manager and CEO.
Barring tracker funds, his fund has seen the highest outflows over the last six months – £444m – in the IA UK All Companies sector.
While Saunderson House’s Ben Williams rates both managers, he prefers Mundy for UK value exposure.
He has held Investec Special Situations for a little over five years and says while it has been a bit disappointing this year he has been adding to Mundy’s portfolio since April.
“It was probably a bit premature but I’m buying it on a three to five year view and his underlying philosophy has not changed, it is just his style is out of favour,” Williams said.
“This is how it works with these sorts of funds. Because of how they invest, they will go through periods when they underperform and then they will have three years of decent returns and then it is time to take some money off the table.”
He thinks Mundy style’s works well over a market cycle but that you have to take a longer term view than a typical UK equity fund.
Mundy’s style means that he tends to underperform towards the end of the economic cycle. However, he has a habit of outperforming in market downturns and the consequent rebound, as was the case in 2008 and 2009 and he will also often hold a stock until it has reached 40-50 per cent of upside despite it losing money in the short term.
Mundy has managed Investec UK Special Situations since 2002, since which he has returned 212 per cent beating both sector and index in the process.
Performance of fund, sector and index under Mundy
Source: FE Analytics
Investec UK Special Situations and Old Mutual UK Alpha both have clean ongoing charges figures of 0.85 per cent.