Bolton’s China setback puts investors off star managers
Many IFAs have warned their clients against following their favourite fund managers into new ventures, but it seems to have taken Bolton’s high-profile underperformance for the message to get through.
An overwhelming majority of FE Trustnet
readers say they would not follow a star manager into an area they have no previous experience in, but IFAs say investors’ past behaviour casts doubt on whether this is really true.
Despite the failure of fund house New Star back in 2009, which developed a stable of star managers, a huge number of investors followed Anthony Bolton into Fidelity China Special Situations in April 2010.
However, leading IFAs hope investors have learnt from their mistakes.
"I did have a number of clients who spoke to me when Anthony Bolton's China fund launched and I strongly advised against it," said Chris Spear, managing director of Spear Financial Services.
"While there are particular areas these star managers already know, there are many they don’t. There is a lot of very soft information they can’t know."
"How can Anthony Bolton
go into China or Russia where the culture is so different? There’s a lot of soft information which you really need to take into account that they don’t have."
"I used to be very heavily into fund managers. I still respect them but I am older and wiser now."
Kerry Nelson, director of Nexus IFA, is of a similar opinion.
"I didn’t go into the China fund when it launched but I had clients come to me saying they wanted in because of all the hype in the media, but I had seen it all before again and again," she explained.
"I think we should never elevate anyone into a star, but it is human nature. You can get hung up on personalities but you have to consider the manager’s knowledge of the area too."
"If the star manager moved to a new fund house and did the same sort of thing you might want to follow them, but if they were to move into a new area I think you’d be better off waiting to see if they could repeat their results."
The poll findings came after industry insiders told FE Trustnet
that the poor performance of Anthony Bolton’s Fidelity China Special Situations fund since launch – it has lost 27.04 per cent in two years – should not put investors off in the long-term
Hargreaves Lansdown’s Mark Dampier said that Bolton was sticking to the same strategy that had brought him such success with the Fidelity Special Situations
fund and that in the long-run it is likely to come good.
Winterflood’s Simon Elliott added that Fidelity China Special Situations
was suffering from a focus on areas that were more likely to be hit in a downturn, namely a domestic and small to mid cap focus.
AWD Chase de Vere’s Patrick Connolly warns of putting too much trust in stars.
"There are very, very few star managers. Some are hyped up quite heavily after periods of relatively short performance," he said.
"When you look at performance figures it is all well and good looking at whether they have outperformed but the next step is understanding how and why."
"Have they made a few bets that have come off? Are their results repeatable? If they move to a new environment will they have the same team and resources?"
"When some fund managers perform well in one company they do not perform so well in another when they have a new back-room team. The amount of support varies from company to company."
Spear agrees that the back-room team often has a large degree of responsibility for the results of the manager.
He says that FE Alpha Manager Leigh Harrison
at Threadneedle is someone whose results have impressed and who has shown what a manager can do with the right support.
Connolly thinks investors should be particularly wary of following managers to new firms.
"The best managers, the most consistent, tend to be those that stay put in one firm," he finished.