Should you follow stars who switch firms?
Like it or not, where “star” fund managers go, money tends to follow. Whether it’s Neil Woodford leaving Invesco Perpetual to start out on his own or Schroders’ Richard Buxton joining rival Old Mutual, belief in the powers of feted managers attracts investors’ money in huge quantities.
But do you actually benefit from backing a manager wherever they lay their hat? And what factors should you consider when deciding whether to move your money to their new fund?
The past few years have seen some of the biggest names in investing jump ship.
It may be tempting to stick with the big names when they move, but do the numbers support such loyalty, asks Sam Brodbeck ‘You may be very happy with the team and resources dedicated to your existing holding’
Analysis for Telegraph Money by Hargreaves Lansdown, the fund shop, looked at three instances of a high-profile fund manager leaving to run a different fund with a comparable mandate.
The three funds’ performance data – expressed in total return figures, which take into account capital gains as well as dividends – paints a mixed picture. But note that in two of the examples managers switched firms not more than three years ago – and experts say judgments should be based on at least five years of data to allow for market conditions that may have masked flaws or artificially inflated performance.
The first of the three managers, Neil Woodford, left Invesco Perpetual in 2013 to set up his eponymous investment company.
His new flagship fund, Woodford Equity Income, produced a total return of 29.7pc between its launch in June 2014 and the start of this month. This compares with the 14.6pc returned by the fund he left, Invesco Perpetual Income.
Likewise, Alister Hibbert swapped Scottish Widows for BlackRock in 2008 to run another European equity fund. To date it has rewarded investors with a mammoth 158.6pc return, compared with the 62pc returned by the sector as a whole and 31.2pc by his old fund, Scottish Widows European Select Growth.
In these examples, investors who followed a manager to a new firm found their loyalty justified. Yet those who moved with Richard Buxton – from Schroders to Old Mutual Global Investors – have not fared so well.
While Mr Buxton’s new fund, Old Mutual UK Alpha, delivered strong returns of 17.7pc from July 2013 to date, this is less than investors would have received in Schroders’ equivalent fund and the sector average. In this case, investors should have stayed put.
Despite this, Laith Khalaf, a senior analyst at Hargreaves Lansdown, said that “under most circumstances” investors should follow the manager they originally decide to place money with.
“A fund is just a shell. It’s like a football club: if you’ve got Pep Guardiola running it you might be perfectly happy to bet on the club winning the Premier League, but if a Division Four manager came up to run the club you might not be as confident,” Mr Khalaf said.
But Tom Stevenson of Fidelity Personal Investing, a rival firm, cautioned against following managers “blindly”. He added: “Some star managers have rightly earned their reputation for investment skill and will feature in many investors’ portfolios. It’s better to focus on your long-term investment goals and look to build a diversified portfolio that meets your individual needs.”
As our figures show, it is not obvious whether following a manager will turn out to be the right decision. However, there are several areas that investors should explore when the leadership of a fund is about to change.
The first thing to check is if the manager’s mandate will be different at their new fund. This includes not only geographical remit and asset type, such as UK equities or emerging market bonds, but what returns the fund aims to make over a given period and what levels of risk the manager is prepared to take.
Understanding the investment processes and resources at the manager’s disposal, as well as the new firm’s track record, should be next on your checklist, said Russ Mould of fund shop AJ Bell.
This can be tricky for individual investors, Mr Mould admitted, but he noted that some fund groups, such as Aberdeen Asset Management, provided plenty of information on managers’ strategies online. These could include details such as how regularly managers meet the companies they have invested in, or whether they favour “value” stocks – considered underpriced – or “growth” companies.
In addition, the teams that back the headline managers should also be taken into account. At Invesco available to them at their new fund?
Apply the above tests to the existing fund – does it still meet your investment needs?
What charges or taxes could you incur by switching funds?
Investors who followed Neil Woodford (right) and Alister Hibbert (near left) when they moved did better than those who stuck with Richard Buxton