Schroders bought Cazenove after losing star manager Buxton to Old Mutual, and it is believed Dean’s Cazenove UK Opportunities fund was one of the main targets of the acquisition. However, there was no news of what was planned for the investment trust Buxton ran under Schroders' auspices, and the discount widened considerably as investors sold out.
The board of the trust today announced that Dean (pictured) will be awarded management of the trust in July when Buxton completes his tenure, in a move that Numis Securities’ Charles Cade says should help reignite interest in the trust and stem the share price decline.
"This is an encouraging outcome for Schroders as it seemed likely that the board would consider holding a beauty parade following the resignation of Richard Buxton and other colleagues from the UK equity team," said Cade.
"Since his departure was announced, the UK Alpha Plus fund has seen significant outflows of about £750m and the discount of Schroder UK Growth widened to double figures, even though NAV performance has remained strong."
Share price and NAV of trust over 3months
Source: FE Analytics
"We understand that the board considered following Richard Buxton to Old Mutual, but the acquisition of Cazenove Capital appears to have proved well timed for Schroders."
"We believe that there should be potential for the discount to narrow now that there is clarity over the fund’s management."
Cade points out that Dean has no experience of running an investment trust, although her track record on the open-ended Cazenove UK Opportunities fund is very good.
Data from FE Analytics shows the £1.3bn portfolio, which has five FE Crowns, has made 103.18 per cent over the past five years while the average fund in the sector has made just 30.42 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Cade says that the style and holdings of the open-ended fund Dean runs are very different to those of the trust.
"Her approach is very different to Richard Buxton's, with a more diversified portfolio (61 stocks at present) and greater exposure to mid caps, which represent 40 per cent of her portfolio," Cade said.
"Although there is very little overlap with the existing portfolio, we believe that transition costs will be more than offset by Schroders agreeing to waive the management fee for six months."
There is currently no information about how Dean will run the trust.
Simon Elliott, head of research at Winterflood, says there are a number of possibilities: "What Julie Dean will do I don’t know. There are ITs that are effectively carbon copies of open-ended funds."
"And what the manager tends to do in that situation to discriminate between the two is to use gearing on the IT, and that certainly is one of the key differentiators for investment trusts."
Dean has a distinctive style that sees her try to foreshadow the business cycle and means she has a higher turnover than most of her peers.
Elliott says there is no reason why this should be easier or harder within a closed-ended structure, and while there are many buy-and-hold managers in the IT world such as Nick Train, others such as Vincent Devlin have a much higher-turnover approach.
He says he is not concerned that she has no experience of running a closed-ended fund, as managers usually find it easier than dealing with the open-ended equivalents.
"Generally the key difference between running a closed-ended and open-ended fund is the closed pool of assets," he said.
"Talking to managers who have done both, they consistently make the point that it’s easier to run a pool of assets in a closed structure because by definition you do not have to manage your liquidity when you see significant inflows or outflows."
"So when you talk to fund managers they all tend to make the point that they are able to take more long-term investment decisions and maybe invest in more illiquid stocks."
There are no major difficulties, Elliott says, although having to answer to an independent board can be a shock.
"There are some soft issues with investment trusts. You have to report to a board of independent directors and the fund managers say that can be positive or it can be demanding."
"These days most investment trusts tend to put their fund managers through their paces."
Schroder UK Growth has an ongoing charges figure (OCF) of 0.88 per cent and is currently trading on a discount of 9 per cent, which is above average for the IT UK Growth sector.
Performance of trust vs benchmark over 10yrs
Source: FE Analytics
The trust has performed well under Buxton since he took it over in December 2002, but it has failed to keep up with the manager’s flagship open-ended product – Schroder UK Alpha Plus.