After a strong year for his £1.4bn Franklin UK Mid Cap fund, manager Paul Spencer announced his plan to retire in September earlier this month. As such, Trustnet asked several experts whether now might be a good time for investors to reconsider the fund.
Since Spencer took over the fund in 2006 it has made 429.94 per cent, a top-quartile performance compared to the peer group’s 134.19 per cent returns.
And last year, the five FE fundinfo Crown-rated fund outperformed all its peers in the IA UK All Companies sector last year, with a total return of 42.30 per cent.
Performance vs sector & benchmark in 2019
Source: FE Analytics
A long track record of outperformance such as Spencer’s is the kind of consistency that investors look for, but a change in manager can sometimes be enough to keep investors away; especially if the name is seen as a key to the outperformance. 
So, with Spencer (pictured) stepping down is now the time that clients will step back from the fund or carry on their support?
Charles Stanley's pensions and investment analyst Rob Morgan said investors shouldn’t make any “knee-jerk reactions” in the wake of the news, particularly as the Alpha Manager will not step down until later this year.
“Some institutions that place emphasis on the named manager alone might reduce their rating of the fund, but investors should understand this is a mechanical process and doesn’t necessarily take account of circumstances until a formal meeting and review is held,” he explained.
“The retirement of a key individual is a perennial risk for fund investors, though on this occasion the strength of the broader team and the longevity of the investment process are encouraging factors.”
Morgan said that there is “a natural evolution” of existing team members taking over Paul Spencer’s duties, with colleague Richard Bullas – a portfolio manager of the fund since 2013 – set to take over as lead manager from 30 June.
AJ Bell’s head of active portfolio Ryan Hughes said he had met with the Franklin Templeton team since the announcement, who made it clear that the handover had been “very well planned,” and consequently Hughes “expects little change in the approach or portfolio”.
“The team are close-knit and went through a similar transition process when Bullas took over the smaller companies fund eight years ago so are well versed in how to do a successful transition,” he said.
“As a result of the plans put in place by the team, I expect little change in the approach or portfolio and as a result, and at this stage remain comfortable with the fund, although clearly we will be closely monitoring the fund to see how Bullas beds in as manager over the course of this year.”
Whilst both Morgan and Hughes agree that Spencer’s upcoming departure is no reason to drop the fund – both have put it on ‘hold’ – there are concerns around the UK mid-cap space, as a whole, which could cause some ill ease.
UK equities have rallied since December’s general election which saw an unexpected Conservative majority returned to parliament.
Performance of FTSE All Share since UK General Election
Source: FE Analytics
However, with the UK leaving the EU at the end of January, the future relationship with its largest trading partner remains unclear as does the outlook for the UK equity market.
If a negotiated trade deal is positive, then UK mid-caps especially could do well. But any flare-up during negotiations resulting in a less favourable deal for the UK could see the mid-cap space suffer greatly.
However, Charles Stanley’s Morgan admitted that “there is also the risk that this doesn’t materialise,” meaning a risk of missing out from not being invested at all. 
Indeed, Tracy Zhao, investment research analyst at The Share Centre (pictured), said there could be a sudden flood of cash into the market which could be captured by the mid-cap space.
“UK businesses have been withholding investment plans due to uncertainty,” Zhao said, “but with Brexit now due to happen on 31 January, at least one aspect of the uncertain fog will be lifted.”
As such, Zhao recommends allocating more to the Franklin Templeton fund, as the opportunity to capture this inflow of new investment is buoyed by the strong Conservative party majority being able to potentially pass an “expansionary budget” with an “injection” to the UK economy, creating positive sentiment and even more opportunity.
“Attractive valuations for the UK stock market, especially the ones down the market cap hierarchy, compared to other developed markets,” she said. “We could see the capital flow back to the market once confidence is restored, as well as a rise in M&A activities in the mid-cap.
“All the while, the forward P/E [price-to-earnings] on the FTSE All Share index is around 14x earnings, well below the long-run average, and rates are still likely to remain below historical norms for some time to come.”