There is no such thing as the ‘perfect’ fund manager, but the Jupiter Merlin fund of funds team says that M&G’s Richard Woolnough and Stewart Investors’ Angus Tulloch possess most, if not all, of the desirable qualities of a top-quality investor.
The Jupiter Merlin team focuses on identifying the best active managers in the industry and this approach, as shown in the below graph, has led to significant long-term returns. For example, Jupiter Merlin Growth Portfolio – the team’s oldest fund – has outperformed its average peer by 30 percentage points over the past 10 year.
Performance of fund vs sector over 10yrs
Source: FE Analytics
At a recent conference held by Jupiter Asset Management, Amanda Sillars – a fund manager in John Chatfeild-Roberts’ Merlin team – highlighted the most important traits to look for in an investor and singled out two that, in her opinion, tick all the boxes.
When seeking a fund manager, the Merlin team looks for outstanding individuals; a resilient, repeatable and watertight process; a cool temperament; an efficient team structure; a focus on absolute as well as relative returns; people it can trust; and a will to win.
In the following article, we look at why Woolnough and Tulloch appear to possess these qualities.
Richard Woolnough – M&G Investments
Sillars’ first example is FE Alpha Manager Richard Woolnough, who runs the £15bn M&G Optimal Income, £4.6bn M&G Corporate Bond and £4.3bn M&G Strategic Corporate Bond funds. M&G Strategic Corporate Bond is a holding of the Jupiter Merlin Income Portfolio.
As the graph on the following page shows, M&G Strategic Corporate Bond has made a 118.53 per cent total return since Woolnough took over in February 2004. This also double the return of its average peer and makes it the best performing fund in the IA Sterling Corporate bond sector over this time frame.
“Richard has extraordinary clarity thought and he applies this not only at the macro level but also at the credit and sector levels. This allows him to avoid the potholes, so for example in 2008 he had very limited exposure to financials,” Sillars said.
Performance of fund vs sector under Woolnough
Source: FE Analytics
M&G Strategic Corporate Bond was the top performing fund of 2008, after its 2.79 per cent total return sat in stark contrast to 9.67 per cent loss made by its average peer. Woolnough’s other funds also performed well: M&G Corporate Bond was the fourth best performer in the sector after making 2.18 per cent while M&G Optimal Income was ranked fifth in the IA Sterling Strategic Bond sector with a 2.72 per cent gain.
“We identified this clarity of thought when he was at Old Mutual and he has been managing Jupiter Merlin client money since that time,” Sillars added.
Woolnough’s investment process starts with his view of the global economic environment and how this will affect inflation and interest rates, especially when it comes to the UK. This allows him to determine the appropriate risk level of this funds, before he uses the recommendations of M&G’s credit analysts to identify the holdings to best express his macroeconomic views.
The manager is also highly respected by FE’s analysts, with all three of his portfolios being members of the FE Invest Approved List. The FE Research team said: “Woolnough has been running bond funds since 2000, doing particularly well in market inflection points and during crises in equity markets.”
M&G Strategic Corporate Bond has an ongoing charges figure (OCF) of 0.66 per cent and yields 3.39 per cent.
Angus Tulloch – Stewart Investors
“My second example is Angus Tulloch at Stewart Investors. Again, he has been managing Jupiter Merlin client money for several decades,” Sillars said.
“He is an absolute stickler for value and quality, his glass is often half empty, he is very cautious and very pragmatic. What fabulous characteristics to have when you're managing money in emerging market equities, which can be a very volatile asset class and where corporate governance can be, to be polite, ‘unusual’.”
“He couples that with an absolute sparkling warmth of personality and a very collegiate approach. That has allowed the team around him to flourish and the energy there is tangible.”
Tulloch’s £8.5bn Stewart Investors Asia Pacific Leaders fund, which is a holding in Jupiter Merlin Worldwide Portfolio and Jupiter Merlin Growth Portfolio, is currently top decile in the IA Asia Pacific ex Japan sector over one, three, five and 10 years.
Since the FE Alpha Manager took over the fund in December 2003 it has been the second best performer in the peer group with a 442.08 per cent total return. The only fund to have made more money is Stewart Investors Asia Pacific, which Tulloch also manages and is up 476.56 per cent.
Performance of fund vs sector and index under Tulloch
Source: FE Analytics
This is another fund that has a place on the FE Invest Approved List and it holds five FE Crowns for superior performers in terms of stockpicking, consistency and risk control over recent years. FE’s analysts say that Tulloch’s ability to protect capital is one of his greatest attributes; in 2008 the fund’s 15.76 per cent fall was less than half of the losses posted by the index and sector.
It must be noted that Tulloch will step back from day-to-day management responsibilities in July this year to hand over the portfolio to David Gait and Sashi Reddy. However, the Jupiter Merlin team does not see this as the cause of significant concern.
“We are very confident that David Gait, who is Angus' heir apparent, shares a lot of his characteristics,” Sillars said. “We believe the alpha stream will continue when Angus relinquishes his role as lead manager and becomes the deputy manager in July.”
Stewart Investors Asia Pacific Leaders has a 0.90 per cent clean OCF.