EdenTree’s Andrew Jackson is one of the very few managers that would have made IBOSS reconsider selling its holding in Miton UK Value Opportunities following the announced departure of George Godber and Georgina Hamilton, according to Chris Metcalfe (pictured).
The investment director said that while the firm has already sold its exposure to the fund within its fund-of-funds range, the team now has doubts as to whether it will be removed from the company’s advisory models.
Metcalfe explains that funds can be sold out of immediately within the OEICs – the company removed Miton UK Value Opps less than one month after FE Alpha Manager Godber and Hamilton announced their departure – but there are compulsory delays on reviewing the advisory portfolios, which are rebalanced four times per year.
The news that Godber and Hamilton were to leave Miton rattled many investors generally, given their fund’s popularity and stellar track record.
Since the duo launched the fund in 2013 to the end of April when the news was announced, it has made a top-decile total return of 56.69 per cent, more than tripling the performance of its sector average despite the fact that value funds have fallen out of favour over recent years.
Performance of fund vs sector since launch to end of April 2016
Source: FE Analytics
The managers are renowned for their distinctive investment approach, which is benchmark agnostic, adopts a long-term time horizon when selecting stocks and includes safety checks to prevent them buying value traps.
“When we heard that George and Georgina were leaving, given that fund is very specifically ‘them’ and it’s very much their own style, we didn’t expect Miton to make an appointment which would then cause us to have to think again about it,” Metcalfe said.
“We’re very big fans of Andrew and we were very disappointed when he left EdenTree. He was supposed to be retiring and he was only 52, which we thought was very young.”
“However, I never thought he’d turn up at Miton. Had Andrew moved somewhere else we probably would have followed him because, again, it was very much his fund and his style. Obviously there’s the potential to follow George and Georgina to Polar [Capital] but that’s a decision for another day.”
IBOSS held Jackson’s Ecclesiastical UK Equity Growth (now EdenTree UK Equity Growth) fund from November 2013 until he left in August last year. The fund was bought as a replacement for Julie Dean’s Cazenove UK Opportunities (now Schroder UK Opportunities) fund, after the firm grew concerned at its rapid rate of inflows.
Metcalfe adds that even if IBOSS does choose to remove Miton UK Value Opportunities from its adviser portfolios for the time being, it is likely that he will revisit the fund after Jackson has been in place for a while, pointing out that there is a “transition period” where managers are holding stocks they dislike and are still rebalancing the portfolio.
“It’s a bit of a curveball, Miton only made the announcement less than two weeks ago,” he continued.
“It’s a decision we didn’t think we would have to make, we were comfortable with where we’d gone and now that Andrew Jackson is joining we’re going to have to think again. He’s one of the very few managers who would have caused us to think so seriously about whether we relegate or not.”
The investment director says the Chelverton UK Equity Growth and GVQ UK Focus funds have since replaced Miton UK Value Opps within the fund-of-funds range, adding that the firm remains happy to be holding these within its portfolios.
IBOSS decided to split the allocation between the two investment vehicles based on their small sizes compared to many of their peers in the IA UK All Companies sector (the former is £28m in size and the latter is £388m), their conviction in the managers’ investment styles and the likelihood that they will remain at the helm of their funds for a long time to come.
The Chelverton funds focuses on small-caps and has a portfolio consisting of 80 holdings while the larger GVQ UK Focus fund has an all-cap approach based on a unique valuation model and holds a concentrated portfolio of 25 stocks.
The five crown-rated GVQ fund has had FE Alpha Manager Jamie Seaton at its helm since 2009, while Chelverton UK Equity Growth was launched by co-managers David Taylor and James Baker in October 2014.
Performance of funds vs sector since Chelverton launch
Source: FE Analytics
“We don’t have a specific figure in terms of fund size and I think that’s been one of our advantages. The fund doesn’t have to be at least £50m or £100m, we look at things like the fund flow, what we know about the manager and what assets we can realistically expect to go into the fund,” Metcalfe explained.
“The GVQ and Chelverton funds are obviously not a direct replacement for the Miton fund, but there wasn’t really anything we could see in terms of just one fund, which is why we split the allocation.”
“We had meetings with GVQ and Chelverton and we were convinced that the managers weren’t going anywhere any time soon.”
While the team at IBOSS has found the decision as to whether to still hold Miton UK Value Opportunities tough, other investors point out that Jackson had been running a growth mandate for many years while Miton UK Value Opportunities adopts a deep value approach.
In an article published earlier this month, Tilney Bestinvest’s Jason Hollands warned that the fund’s approach is likely to differ vastly, so investors looking to maintain the same value weighting in their portfolios might want to consider other options.
“The mandate is a little different from [Jackson’s] previous fund because of its clear value style, so investors who particularly want that approach might still be inclined to follow George Godber and Georgina Hamilton to Polar Capital or look at alternative UK value funds such as Henry Dixon’s Man GLG Undervalued Assets fund,” he said.
Metcalfe believes that the fund’s process will have to change with Jackson in charge but says could be positive, given that the manager has performed so well in the past through his own investing style.
Over the manager’s 12-year tenure of EdenTree UK Equity Growth, it achieved a total return of 263.71 per cent compared to its sector average’s return of 153.32 per cent and its benchmark’s return of 151.48 per cent.
Performance of fund vs sector and benchmark under Jackson
Source: FE Analytics
It has also posted top-decile annualised volatility and risk-adjusted returns – as measured by its Sharpe ratio – over the same time frame and delivered top-quartile annualised returns during the bear markets of 2008 and 2011.
“We don’t get too hung up on the growth and value labels. We don’t set out to use funds that are particularly in the UK Smaller Companies space or the UK Equity Income space as a separate asset class either: we put them all together to see what the overall shape of our UK allocation looks like,” Metcalfe explained.
“So if Andrew’s successful, that’s basically it as far as we’re concerned. We could try to make it too scientific in terms of the value versus growth argument – we were hearing from managers that it wasn’t the time for value over the last few years, yet George and Georgina were running an absolute value fund and shooting the lights out.”
“I think sometimes good managers are just that.”
