Should you fol­low stars who switch firms?

The Daily Telegraph - Your Money - - YOUR MONEY -

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

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