Are fund management skills transferable across sectors?

Schroders recently announced that its former Tokyo fund manager Denis Clough would be returning to the group after a year-long sabbatical. This time, however, he will instead be managing European equities. Clough (pictured right) had been a specialist in the Japan sector for over 20 years, including 19 years as manager of the Tokyo fund.

In a similar move, Rob Burnett, former manager of the Neptune Japan fund, is to take over as manager of the group’s European Opportunities fund.

Managers inevitably build up in-depth market and company knowledge in their particular specialist area over time. But is it indeed possible for fund managers to transfer their skills and positive performance successfully into what may be an unfamiliar market?

Robin Stoakley, managing director of retail business at Schroders, admits that it is not common to see more established managers changing markets. He adds that many managers do indeed start their careers in a different area, but switches between sectors are usually made early on.

Mark Dampier, head of research at Hargreaves Lansdown, agrees, saying that it is unusual to see managers move sectors once they have a long-established reputation managing funds in a certain market.

While the idea of managers moving from one market to another may be uncommon within the industry, Stoakley adds that several skills that are common to many fund managers are easily transferable. Risk analysis and portfolio construction, for example, can be applied in a different sector, while a manager with good skills will also be able to spot good companies and balance sheets across markets, he says.

“Building up a knowledge of the market is not difficult. The keys to succeeding are the judgment calls they make and how they interpret the knowledge that they have. That completely crosses boundaries,” says Stoakley. “A company is a company, a balance sheet is a balance sheet and a market is a market,” he adds.

“The fundamentals driving stockmarkets are broadly similar. If you spent 20 years analysing companies in one market, I believe that skill is eminently transferable to another market,” says Stoakley. “If you are a fundamental fund manager, such as Denis, you can certainly transfer skills to a new market,” he adds.

Stoakley also emphasises the importance of the manager having a period of familiarisation with the new market, as well as a strong team to work alongside, including analysts.

Bambos Hambi, head of multi-manager at Gartmore, agrees and adds: “Fund management is a skill. A good fund manager will always be a good fund manager, but there is going to be a learning curve.”

He adds that managers new to a particular market will ultimately have to build up a knowledge base again, which comes from meeting with company management.

According to Dampier, by switching sectors, a manager can bring a different perspective and may even rejuvenate a fund within a market that is new to them. However, he adds that a manager who switches to a new sector may initially miss out on the experience of having a strong knowledge of company management.

The European sector is also more competitive than many other markets, inclu-ding Japan, adds Dampier. “These managers may have to prove themselves again against established European fund managers.”

Dampier says he sees no reason why managers should not be able to transfer between markets. However, he adds he is likely to take a wait-and-see approach before investing in those who are new and competing against managers who have long-standing track records in a particular market.

Commonalities between markets may also have a lot to do with the ability of a manager to change his specialisation successfully. Stoakley adds that switching from one equity market to another is feasible, while switching from gilts to equities would probably present a far greater challenge.

Robert Burdett, director of multi-manager at Credit Suisse Asset Management, agrees. He says that, on a macroeconomic level, the current situations in Japan and Europe in particular may have more in common than other markets. Several countries in Europe are experiencing unemployment growth and low economic growth, which is also the case in Japan.

While Burdett adds that many investors will adopt a “watch this space” approach to many of the recent changes, the success of such a move will ultimately depend on each individual manager.

“You have to approach this with some scepticism, but in these cases, it is driven by the managers themselves. You have to pay more attention in these circumstances,” says Burdett.

He adds that there is a precedent where manager moves across sectors have worked very well. “It will be interesting to watch Clough; he has an excellent track record in fund management.”

Other high-profile names who have made the switch across markets in the past include Aberdeen’s head of Pan Europe, Yoon-Chou Chong. Chong started his career in the Singapore office of Aberdeen, investing in Asian markets, and went on to become the group’s head of UK equities.

Burdett also points to former Edinburgh manager David Currie (pictured above) as an example of a successful move between markets. While at Edinburgh, Currie switched from managing Japanese equities to American equities and later became the group’s head of US equities.

According to Hambi, another move from Japan involved former Isis manager Julie Dent (pictured left), who moved from being head of Japanese equities at the group and is now head of global equities at the merged F&C. She is also the manager of the British Assets investment trust.

In a move across asset classes, Stephen Snowden, former manager of the high-yield Aegon Extra Income and Optimum Income funds, joined Old Mutual early last year as a corporate bond manager. According to Old Mutual, in the year to March 31, the Corporate Bond fund returned 7.4% compared with a sector average of 4.5% – so in this case at least, the early evidence is of a successful switch.