When a top-performing manager leaves a fund, the group has two options. One is to spend money on bringing in a manager with an established reputation from outside, and the other is to promote someone from within who has worked closely with their predecessor on the portfolio.
M&G has recently gone with the latter option, with deputy manager Randeep Somel announced as the new lead manager of the £4.3bn M&G Global Basics fund following the news that FE Alpha Manager Graham French will retire.
Time will tell how the fund will change and whether Somel will be a success.
Here is a selection of the fund manager protégés who successfully took over from a more famous predecessor when they were promoted to run their funds.
Some have had more success than their former mentors, and M&G and Invesco Perpetual will be hoping this will be the case for Somel and Mark Barnett.
Stuart Rhodes
Rob Morgan, pensions and investment analyst at Charles Stanley Direct, says that FE Alpha Manager Stuart Rhodes (pictured) is one of the best examples of a successful promotion.
"He used to work as Aled Smith’s number two, who heads up the global team and currently manages the M&G American fund," he said.
"Rhodes now runs the M&G Global Dividend fund and has set up his own team. The fund has performed very well and he actually now runs more assets than Smith."
Rhodes joined M&G as an equity analyst in 2004, working on the global team. In July 2008, he was appointed manager of the newly launched M&G Global Dividend fund. It now has more than £8bn in assets under management.
According to FE Analytics, the fund is a top-quartile performer in the IMA Global sector over that time with returns of 97.76 per cent, beating its benchmark – the MSCI AC World index – by more than 35 percentage points.
Performance of fund vs sector and index since July 2008
Source: FE Analytics
M&G Global Dividend also sits in the top quartile over three and five years.
Rhodes concentrates on finding a growing level of income instead of chasing headline yield and that is the reason why his fund is not in the IMA Global Equity Income sector. It currently yields 2.96 per cent, but has increased its net distribution over the past three years.
The fund has an ongoing charges figure (OCF) of 1.66 per cent and requires a minimum investment of £1,000.
Mark Barnett
Though he was never officially the deputy manager of soon-to-depart Neil Woodford, Morgan says that Mark Barnett should feature on the list for the fact he worked closely with his better-known counterpart for a number of years before taking over his Invesco Perpetual UK Strategic Income fund.
"Mark Barnett is probably one of the most obvious," Morgan said.
"He is quite topical at the moment because of the news that Neil Woodford is leaving Invesco Perpetual, but he has actually outperformed Woodford recently. The problem Invesco has is that they don’t have an actual number two to Woodford."
"However, Barnett has sat on the UK equity desk, which is headed up by Woodford, for a long time now and his Invesco Perpetual UK Strategic Income fund sits in the same sector as Invesco Perpetual High Income and Income," he added.
As FE Trustnet recently reported, Barnett has the difficult task of taking over from Woodford as manager of his multi-billion pound equity income funds.
However, as Morgan points out, Barnett has all the right credentials. He joined Invesco Perpetual as an analyst in 1996 and took on the mandate of the Perpetual Income & Growth Investment Trust in 1999.
He took over the five crown-rated Invesco Perpetual UK Strategic Income fund in January 2006.
It is the third-best performing fund in the IMA UK Equity Income sector over that time, beating both of Woodford’s in the process.
Performance of funds vs sector since Jan 2006
Source: FE Analytics
As it stands, Barnett will continue to run his Strategic Income fund when he takes over the Income and High Income funds. His portfolio has an OCF of 1.2 per cent and requires a minimum investment of £500.
Steve Davies
Morgan is also a fan of Jupiter’s Steve Davies.
"Steve Davies was number-two to Ian McVeigh at Jupiter for a number of years. He did a good job and he was rewarded with his own fund, Jupiter Undervalued Assets, which has performed really well," Morgan said.
"However, he is still the named deputy manager on McVeigh’s Jupiter UK Growth fund."
Davies joined Jupiter in 2007 as a UK equities analyst and became deputy manager of the UK Growth fund in April 2009. He took over as manager of the £121m Jupiter Undervalued Assets fund in January 2012.
Our data shows that since Davies has been in charge, the Undervalued Assets fund has been a top-quartile performer in the IMA UK All Companies sector with returns of close to 50 per cent and has significantly beaten the FTSE All Share.
Performance of fund vs sector and index since Jan 2012
Source: FE Analytics
Jupiter Undervalued Assets has an OCF of 1.77 per cent and requires a minimum investment of £500.
Clive Beagles
Going back a little further, Darius McDermott, managing director at Chelsea Financial, says that Clive Beagles’ promotion to manager of the Newton Higher Income fund was particularly effective.
"Clive Beagles worked on the Newton Higher Income fund and was promoted to lead manager when Toby Thompson left for New Star," he said.
"He did a couple of years at Newton Higher Income in the early noughties, which went well, before he went to JOHCM and began managing their UK Equity Income fund which has been very successful," he added.
Beagles managed the Newton Higher Income fund between June 2001 and March 2004.
Over that time, the fund was the sixth best-performing portfolio in the IMA Equity Income sector. It returned 6.44 per cent over that time, while the FTSE All Share made a double-digit loss.
Performance of fund vs sector and index between June 2001 and March 2004
Source: FE Analytics
He took over the JOHCM UK Equity Income fund in November 2004 and with returns of 160.6 per cent, it is the second-best performing portfolio in the sector over that time. The only portfolio to have beaten it is FE Alpha Manager John McClure’s five crown-rated Unicorn UK Income fund.
JOHCM UK Equity Income requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.3 per cent. It also has a performance fee. However, new investors who go direct have to pay a 5 per cent initial charge as the group is trying to limit inflows.