Investors should hold fire on selling if they already own Miton UK Value Opportunities but shouldn’t be too quick to buy in at the moment, according to a selection of investment professionals.
The £359m fund’s backstory is well-known to most investors. Since it was launched by George Godber and Georgina Hamilton in March 2013, it has been a staple holding of many investors’ portfolios given its stellar performance and distinctive investing style, which involved adopting a long-term value approach to portfolio construction.
Over the course of less than three years, the fund had grown from £34.1m in size to £868.9m, which is a significant 2,448 per cent increase in size.
The fund, which has four FE crowns, also achieved a top-decile total return of 41.33 per cent over the duo’s tenure, comfortably doubling its sector average’s return of 16 per cent.
Performance of fund vs sector under Godber and Hamilton
Source: FE Analytics
However, it was announced by Miton in April this year that Godber and Hamilton were to leave Miton and head to Polar Capital – Godber had a one-year contractual notice period and Hamilton had six months.
Despite the fact the duo would continue to run the fund until a replacement was found, the fund’s performance fell by 2.52 per cent during April alone.
However, the announcement that Andrew Jackson, former manager of the sector-topping EdenTree UK Equity Growth fund, would be taking over the helm was met with positive responses from industry commentators.
In an article published shortly after the news was revealed, Chase de Vere’s Patrick Connolly said: “The previous managers did incredibly well both there and in their previous roles at Matterley so it’s a tough challenge to find somebody to come in with the right pedigree to replace them.”
“Potentially Andrew Jackson is very good person to do that and from our perspective, we see this as a positive move for the firm and for Andrew Jackson as well.”
One of the concerns that was voiced, on the other hand, was that Jackson had been running a very different mandate from Godber and Hamilton’s. While Miton UK Value Opps was well-known for its deep value approach, Jackson’s previous fund had a staunch growth mandate.
In Miton UK Value Opportunities’ latest factsheet, Jackson explained that his aim over the course of July was to reduce the fund’s overexposure to UK consumer-related stocks and instead by into companies with a lower sensitivity to the UK economy, while avoiding selling holdings that are at artificially depressed prices ahead of a rally.
“Turning to the fund, there is more work to do to reposition its stance to make it better prepared for a post-Brexit world but securing the best value for unitholders on both sales and purchases remains an important consideration,” he said.
“Past experience has shown that at times of such heightened uncertainty it pays to deal in known facts and absolute valuations rather than relying on speculation and hope; not for the first time, it will pay to heed the lessons of history.”
Since Jackson has been at the helm of the fund, it has returned 9.91 per cent compared to its sector average’s return of 7.44 per cent. On a six-month view, however (which is of course a very short time frame to observe), it has returned 1.2 per cent compared to its average peer’s return of 14.19 per cent.
Performance of fund vs sector over 6months
Source: FE Analytics
Over the same period of time, the fund fell from £704.21m in size to £532.01m and, over the last three months, it has shrunk by 38 per cent (these figures include outflows and unit price declines).
Should so many investors have sold out of the investment vehicle or would it have been more prudent to hold onto the fund despite the change in management?
Steve Lennon, investment manager at Parmenion, said: “Andrew Jackson had a decent track record at EdenTree and delivered reasonably consistent alpha.”
“However, the Miton fund he has taken over is larger than his old fund and has a slightly smaller average market cap. Whilst Miton is nowhere near the size where liquidity might become an issue, this may present a challenge to Andrew. Ideally, holders of the fund should get to grips with Andrew’s philosophy and processes. If then comfortable, then one should probably stick with it.”
Jason Hollands, managing director at Tilney Bestinvest, points out that the fund has faced a “perfect storm”, having experienced outflows during a period when small and mid-cap stocks were suffering from a post-referendum knee-jerk reaction.
“[The outflows] will largely be down to the previous manager’s fan base upping sticks, but there has also been a lot of asset allocating out of mid and small-cap funds into the FTSE 100, as we all as into quality growth funds. It’s clearly not helpful having to sell stock to meet fund redemptions in this type of environment,” he said.
“Andrew Jackson isn’t a manager I’m very familiar with but his performance numbers at EdenTree are undoubtedly very good and particularly so in tougher market environments.”
“According to our database, he’s been ahead in 72 per cent of market down months across his identifiable careers. With markets pretty richly priced and it getting tougher to see the upside, someone able to navigate rockier markets could prove quite handy, so maybe remaining investors should give him a chance to prove himself.”
Performance of fund vs sector and benchmark under Jackson
Source: FE Analytics
In terms of new investors buying into the fund at the moment, Wellian’s Richard Philbin says there are a number of factors to consider.
Aside from the usual considerations such as the client tax situation, its attitude to risk and the manager’s investment time horizon, he says that he would need to know more about Jackson’s own philosophy, style, approach and how different the fund is likely to look in six to 12 months’ time before adding it to his portfolio.
“Are both fund managers value-driven with a 60 stock portfolio, or are they both drastically different which means the new style might not fit within the existing portfolio? Obviously it makes sense to compare Andrew’s previous fund and track record with that of George and Georgina to highlight similarities and differences,” he said.
“If I were watching from the side-lines though, I would be interested to ask Miton how the daily cash flows are. When a new fund manager comes into a fund that is bleeding assets, it might not make a lot of sense to invest until everything slows down and the manager makes the necessary changes to make it ‘his’ and a sense of ‘normality’ emerges.”
Ben Willis, head of research at Whitechurch Securities, explains that the firm sold out of the fund following the announcement of Godber and Hamilton’s departure.
He points out that this isn’t because of a lack of faith in Jackson though and says it is because the fund is likely to be managed differently and to focus on different areas.
“Jackson’s track record looks good and Miton appears to have found a decent replacement. However, he is very different to the departing managers so do some research first,” he warned.
“I can only go by our decision in that Jackson isn’t Godber and Hamilton. I think many investors who backed those two in the early days (like we did) and because of the Brexit result and the implications for small and mid-caps, just saw an opportunity to take some profits. I think some investors will back them at Polar although it is a long time to hold onto the cash.”
Chris Wise, investment director at Gemmell Financial Services, says that those already in the fund should remain in and see if Jackson can turn the fund’s six-month performance around.
For those that don’t hold the fund currently, he says it is one to watch given the volatility in the sector and the change in management.
“I think probably the majority of the outflows are in respect of the manager change, although the fund performance has been disappointing over the past 12 months which may also have played a part in investor withdrawals,” he explained.
“I like the bottom-up stock picking approach of the fund, which provides it and the manager with a great deal of investment flexibility, which should serve it well over the longer term, although the effect of Brexit could be felt for some time to come in that part of the market, which may continue to impact on performance.”
Miton UK Value Opportunities has a clean ongoing charges figure of 0.83 per cent and yields 1.41 per cent.