A little more than three years ago, Ed Legget switched from Standard Life Investments to Artemis Fund Managers to replace veteran manager Tim Steer following his retirement. 
Since December 2015 – when he joined Artemis, his former fund – Standard Life Investments UK Equity Unconstrained has seen its assets under management halve from more than £1.2bn to £667m, but were investors right to leave the fund?
First, it is important to understand why the manager may have made the switch in the first place having been with the firm for 13 years and running funds for nine.
AJ Bell Investment head of active portfolios Ryan Hughes said that for Legget (pictured) the benefit was to build his own franchise at Artemis.
“Standard Life work on a team basis, with a large analyst base to draw on while Artemis give the fund managers more freedom and flexibility to deliver,” he explained. “This freedom can often be very attractive to managers that are coming from structured investment approach.”
As well as this freedom, Rob Morgan, pensions and investments analyst at Charles Stanley Direct, added that it allowed Legget to focus solely on fund management.
He said: “Standard Life is a larger organisation and his career trajectory there would have likely entailed managing more people and resources, whereas Artemis operate a more ‘boutique’ style allowing managers freedom and flexibility to pursue their investment approach unencumbered by various corporate demands.”
However, the change in culture has meant “less resource in terms of personnel at Artemis and a greater requirement for individual stockpicking flair,” Morgan added.
For Artemis, Gavin Haynes, managing director at Whitechurch Securities, said it was important for the firm to recruit a high-profile name to replace Tim Steers on its UK Growth fund, which was one of their flagship offerings.
“Legget had produced exceptional returns with the UK Equity Unconstrained fund and being Edinburgh-based it was a natural fit,” he said.
Standard Life Investments UK Equity Unconstrained was taken over by Wes McCoy in June 2015 following Legget’s departure, running the fund in a similar way to his predecessor.
Charles Stanley Direct’s Morgan noted: “McCoy was an obvious replacement for Legget having worked at SLI and managed this fund earlier in his career from launch in 2005. He slotted in easily, meaning little change to the philosophy, process and make-up of the portfolio.”
Indeed, it remains a 40-50 stock portfolio, although McCoy utilises the ‘focus on change’ approach at Standard Life, which is able to capture more of the momentum in the market.
Meanwhile, Legget has replaced Steer’s ‘growth’ outlook with a slightly more contrarian approach.
“Legget also takes some short positions, which is not something that he would have done at Standard Life,” said Morgan.
He added: “These are smaller and less impactful than those Tim Steer carried out – to generally good effect – when he managed the fund, but it does give further scope for adding value and provides some additional differentiation from other active funds in the sector.”
Outside of shorting, the main difference is where the two are positioned in terms of market capitalisation, with the Artemis fund taking more of a large cap bias with 60 per cent in FTSE 100 stocks.
McCoy’s current positioning in comparison is much more focused on mid-caps, with just 20 per cent invested in FTSE 100 stocks and 70 per cent in FTSE 250 names.
So far, had investors in Standard Life Investments UK Unconstrained Equity followed Ed Legget to Artemis when he took over the Artemis UK Select fund they would have fared a little better than those that stuck by McCoy.
From the end of December 2015 until end of August 2018, the Standard Life fund has returned 19.09 per cent compared to 22.44 per cent from Artemis, as the above chart shows. However, both have lagged the IA UK All Companies peer group.
Performance of funds vs sector since Legget started at Artemis
Source: FE Analytics
And AJ Bell’s Hughes said that this relative outperformance of three percentage points “hides the fact that both have underperformed the FTSE All Share index over the period by up to up to 10 percentage points, with both struggling”.
Indeed, both managers had a very challenging time in 2016 when a focus towards domestic stocks saw significant underperformance during the EU referendum.
“More recently [over one year] McCoy has enjoyed much stronger performance, outperforming the market and Legget, albeit with much higher levels of volatility,” he added.
Despite the outperformance, Hughes said the decision between the two managers is very close, with neither jumping off the screen as particularly strong ‘buy’ candidates.
“It is clear that Legget has had a tough time since he joined Artemis and has been open about the challenges, particularly around Brexit where he struggled,” he said.
“As the market has become narrower, Legget’s positions have become more tilted towards value and he will have to be patient before this pays off,” explained Hughes. “At the present time, it is difficult to make a strong buy case for the fund.”
Meanwhile, McCoy has managed to gather some short-term momentum, his fund looks very different to the index meaning that it is hard to place the fund, he argued.
“With a likely permanent bias away from the large-caps, personally I prefer to look at the dedicated mid-cap strategies run elsewhere,” he said.
“However, for those who like the Standard Life focus on change, this may be an interesting way of implementing it. On that basis, McCoy just noses ahead but certainly doesn’t land a knockout blow.”
Conversely, Charles Stanley Direct’s Morgan said he would go the other way.
“Given the choice of the two I would back Legget at Artemis to ultimately produce stronger longer term returns now he has settled in the new role and culture, though in a strong market environment led by growth stocks I would anticipate that the Standard Life fund would perform better,” said Morgan.
Whitechurch Securities’ Haynes added, however, that the choice between the two is extremely close and that he would struggle to differentiate them.
He noted that Legget has the stronger long-term track record having produced “exceptional” returns with the SLI UK Unconstrained fund between 2008 and 2015.
Performance of fund vs sector under Legget
Source: FE Analytics
But during this period he had a wealth of support from the analysts and proprietary quant screening tool Matrix at Standard Life – something that is now being enjoyed by McCoy.
“Time will tell if Legget or McCoy and the SLI machine/Matrix will add the greater value going forward. Both funds have a very similar approach so I would struggle to choose between them,” he said.
“They have both avoided higher rated growth stocks which have performed strongly. However, if we see a favour for more domestically-focused value stocks then both should recover strongly.”