Can “star” fund managers who have earned their reputation for managing money at one company perform equally well when they move to another? Paul Farrow looks at how 10 recent movers have fared.
New signings sometimes fail. David Beckham, for instance, has not scaled the same the heights since he moved to Real Madrid, while Andriy Shevchenko has yet to prove to Chelsea that he is worth his multi-million pound fee.
But is it the same for fund managers? There is no doubt that some fund managers appear to have the Midas touch, although some hold onto it for longer than others. When managers start to deliver stellar returns their own stock goes up in value and rivals take an interest in the hope that they may be able to lure them to their side.
Over the past few years’ dozens of managers – some better than others – have been poached because of their previous performance. It is well documented that the likes of Nigel Thomas, George Luckraft, Richard Pease and Stephen Whittaker have continued to win the plaudits, but what of the others, many of whom were only getting noticed for the first time?
We have selected 10 fund managers who moved onto different pastures in the past five years to examine whether they have generated the returns their current employers and investors would have expected.
Back in the early 2000s there was an all-weather fund that multi-managers drooled over. It was Tim Russell’s HSBC Growth & Income. These managers loved it – so much so that when Russell quit for Cazenove at the end of 2002 to run a fund by the same name, millions of pounds went with him.
He launched Growth & Income almost immediately and since his move four years ago he has delivered steady second-quartile performance – helped by the first year or so when he stayed ahead of the pack.
However, the past two-and-a-half years have been far more of a struggle, with Russell maintaining underweight positions in mining and commodities, which he believed were overvalued.
He also expected more defensive investments to outperform far quicker than they have. “His business cycle process has perhaps been less effective over the past few years simply because the business cycle has been far more muted this time around,” says lifelong fan Mark Dampier at Hargreaves Lansdown. “In other words, the UK economy continued to purr along at a fairly even rate with no real inflexion points.”
Despite his performance, Cazenove UK Growth & Income remains on Hargreaves’, and other advisers, recommended list as, the group says, his time to shine will come, and that may be sooner rather than later.
Robert Morris was the given the responsibility of taking on Russell’s mantle at HSBC and made a decent fist of it until recently, delivering above-average performance. But the fund has slipped this year following a restructure that saw Growth & Income become one of the biggest funds in Britain at more than £1bn, by merging with two other UK funds in the HSBC stable: Household Names and British.
Chris Rice was the quiet man of Europe back in the late 1990s when outspoken managers such as Rory Powe of Invesco European Growth stole the limelight. Powe has long since disappeared from view, but Rice has continued to attract a following. Although his HSBC colleague, Russell, was the star name to move to Cazenove, the blue-blooded bank would have been more than satisfied with its European coup.
Rice has certainly not let his new employers down since taking over the European fund at the beginning of 2003, delivering top-quartile numbers. It is a performance that has caught the eye of multi-managers and IFAs, who are increasingly using his fund as a core holding. “We did not invest with him while he was at HSBC. The primary reason for this was that Chris was managing relatively large amounts of money and while his investment style is larger-company focused, we felt there were other managers who benefited from running smaller funds that were consequently more flexible,” says Marcus Brookes at Gartmore.
“Chris’s decision to leave HSBC with five of his colleagues to join Cazenove offered us the opportunity to invest with a highly talented manager who had been freed of the shackles of large assets. Also, by joining a boutique, Chris and his colleagues became part owners of the business, which encouraged us to believe they would be incentivised to stay.”
In September 2002, Neil Pegrum, touted by his former employer M&G as “one of the best managers in the UK”, left the company to join Insight, the rebranded investment arm of HBOS. It proved a short-lived love affair and Pegrum quit Insight for Cazenove after just nine months.
The Cazenove UK Dynamic fund, which was launched for Pegrum, aims to beat the FTSE All-Share index by five percentage points each year. Because it aims at an above-average return, there is higher risk and Pegrum only holds about 40-45 stocks in the portfolio. He admits he does not have controls on what he holds in certain sectors, although the lion’s share of the fund is in mid-caps.
The fund has trailed both the M&G and Insight funds. “Given the focused nature of the fund, comparison with managers’ performance will show marked differences,” says Frans van den Berg from Punter Southall Financial Management. “Neil has had a good three months in comparison with Tom Dobell, the current manager of M&G British Opportunities [which merged with M&G Recovery last month], whereas Dobell’s performance over the past 12 months has outpaced that of Pegrum’s Dynamic fund. For those who held M&G British Opportunities while Pegrum was the manager, staying with M&G has proved to be the right choice.”
It was a massive blow for Schroders when Adriaan de Mol van Otterloo, manager of the European and European Alpha Plus funds – both top-quartile performers – announced he was quitting to join the ranks of fund managers setting up their own investment boutiques. It also surprised many that Leon Howard-Spink decided to move from Jupiter, a firm renowned for its freethinking culture, to the bigger and traditionally more institutionally-focused Schroders.
Although it is barely a year since Howard-Spink took over Alpha Plus, the fund has returned more than 30% and many commentators have proclaimed the swoop by Schroders as an “inspired hire”. The manager admits it is working because Schroders has let him run money in the same way he did at Jupiter. “No one here has made any efforts to constrain me or force me to buy from approved stock lists,” he says.
He began to change the portfolio in earnest earlier this year, having examined Otterloo’s portfolio for the first three months of his tenure. The fund is split into five sections. There is a core section of high-quality, low-volatility businesses and around this core he builds several “specialist” mini-portfolios: structural growth stories, companies with excellent management and deep-value stocks and restructuring stories. Howard-Spink hopes this construction will help the fund deliver higher returns consistently but with lower volatility than many “core” funds in the market.
Robert Burdett, a director of Credit Suisse, has long been impressed with Spink, owning his fund while he was at Jupiter and since. “We sought reassurance on how he would tackle the vastly different structure of Schroders and were sufficiently impressed to wade in soon after the move,” he says. “Howard-Spink is a dedicated young man intent on making his move work for clients.”
Dampier is also a fan of Howard-Spink but continues to also recommend the Jupiter fund he used to run. “It was taken over by Cedric de Fonclare, who we already knew because had been running European money for the Jupiter Global Managed fund,” he says.
Artemis is a fund group that has hired brilliantly, with most of its funds rarely delivering anything but first-quartile performance. Having built its reputation on traditional equity funds it drafted in Foster not long after he had taken 10 weeks sabbatical from Isis to front its assault in the corporate bond sector. Foster has his credentials – not only was he head of credit, but he was the only manager to deliver a positive return in the aftermath of the terrorist attacks in September 2001.
The question many advisers asked was whether Foster, who had been used to the trappings of a big organisation with a team brimming with bond analysts, would cope with a smaller group that was making its first foray into bonds. To date the answer has been in the affirmative.
Foster launched the Strategic Bond fund in June 2005 targeting outperformance through a combination of asset allocation and stock selection – the fund is said to be more focused than his F&C (Isis) fund.
“Foster has proved any doubters wrong by continuing to perform well at Artemis, despite fears that he might miss the more extensive research resources available to him at F&C,” says Justin Modray at Bestinvest. “He is unconstrained and has made full use of this to make significant changes when he thinks it will add value.”
Frans van den Berg, from Punter Southall Financial Management, agrees that although Foster is using a different approach than that which brought him success at F&C, the initial signs are that it is working. “This is a fund we would consider for our clients as we believe the strategic approach – where the manager tailors the portfolio to the economic cycle – is essential in a low-interest rate, low-inflation environment,” he says.
Stephen Snowden has been one of Britain’s top-ranked corporate bond managers for a while and is not shy from putting his head above the parapet. Two years ago, for instance, he would have won few friends in his marketing department by suggesting that investors would be better off in an ING savings account than a corporate bond fund because at the time he was less than optimistic about the market.
Since taking over the Old Mutual Corporate Bond fund from another reputable manager, Richard Woolnough, Snowden has enhanced his reputation further. One of his first moves was to widen the remit of the fund so it could invest in unrated bonds. He also relaxed its credit quality restriction, which forced the fund to invest in BBB+ bonds, so it could invest in bonds of lower quality. Both decisions have paid dividends.
“He stripped away the constraints from an already relatively free mandate and has continued the excellent track record of his predecessor,” says Burdett at Credit Suisse. “We are happy to have been a big supporter since.”
Bates Investments concedes that when it was first announced that Snowden was leaving Aegon for Old Mutual it was worried. “As it has turned out, performance has continued to be extremely strong and Snowden’s own research has to some extent replaced that of the supporting team at Aegon,” says Paul Ilott at Bates. “One of the reasons for leaving Aegon was that Snowden felt his talents were being stretched over too great a number of funds – at Old Mutual he could concentrate all his efforts on managing just one. So far his instinct has been proved right and, as a result, we have been keen supporters of the Old Mutual Corporate Bond fund.”
Aegon swiftly moved to replace Snowden with Britannic’s fixed interest whiz-kid, David Roberts. Roberts has held his own and the Aegon Sterling Corporate Bond tops its IMA peer group, being 20 percentage points ahead of the bottom-performer over the past three years. The portfolio, which invests primarily in sterling-denominated, investment-grade corporate bonds and government bonds, achieved returns of 25.88% compared with a sector average of 16.25%.
Nick Roe-Ely managed one of the best-performing American funds from his Liverpool office for almost a decade. For most of that time, the fund was only available to private clients of Tilney, but in 2004 the company decided to cash in on his talents and open the fund to the wider market.
But Roe-Ely was getting noticed by groups looking to make headway in the American fund space. He reportedly first rebuffed an approach from Britannic Asset Management before succumbing to the persuasion of Nicola Pease at JO Hambro – a boutique that is increasingly luring top managers.
A mid-cap specialist, Roe-Ely moved to JO Hambro in 2005 after 20 years at Tilney. Performance has been far from sparkling as the recent clamour for large-caps has conspired to work against his preference for mid-caps and has left the JO Hambro American Growth fund struggling at the wrong end of the performance tables.
Several leading multi-manager players have shunned Roe-Ely in both his guises. “I am struggling to fathom quite why JO Hambro recruited Roe-Ely, as his pedigree is not as convincing as others in its stable. He has certainly had a torrid time since joining as performance has been among the worst in the sector over the past year,” says Modray at Bestinvest.
Newton Higher Income has proved a popular fund over the years, as indicated by its £3bn size. Beagles was thrust into the limelight when its former manager, Toby Thompson, joined New Star, but it was the fund’s gigantic size that contributed to his decision to join JO Hambro in 2004 and front its first equity income fund. In contrast to Newton Higher Income, Beagles’ JO Hambro UK Equity Income fund will be capped at £750m and if he continues as he has started, the cap could come into play before long.
At the time of the fund’s launch, Beagles said: “The Newton Higher Income fund was too large and it was impacting upon performance. Towards the end of my time as manager on the fund there were signs that it was getting longer and more difficult to get in and out of positions. I did not think there was likely to be a degree of change on this. Taking 8%, 9% or even 10% of individual companies, as we did at Newton, was not sensible and it is something we do not have to do on the new fund.”
Since managing the JO Hambro fund, Beagles has beaten most of the competition and the FTSE All-Share.
“When managers move you need to look very carefully at the process they used both at the previous employer and the new employer,” says Jason Britton at T Bailey. “The thematic-led team approach utilising the strength of Newton’s research is a very different style than Clive’s current approach – smaller team, less resource but, importantly on the evidence of the numbers, more freedom. Two years on from the move he is beginning to build a strong record.”
Bates Investment decided to keep its clients in the Newton fund rather than follow Beagles – a decision it says was the right one at the time and one it does not regret. “Newton funds are all run with a team-based approach and with a fairly clear strategy, which made things relatively straightforward for us when Clive Beagles left for JO Hambro,” Ilott says. ” We decided to stay put with Newton Higher Income and although we are happy with our decision, since then Beagles has delivered strong performance.”
Despite being just 27 years old, David Mitchinson caused a stir in 2004 when he said he was quitting Framlington, where he managed the Japan fund, for JPMorgan. Multi-managers, who had been impressed by his performance – the fund had returned 40% in three years under his tenure and was the best performer in its sector – withdrew millions of pounds from Framlington Japan almost immediately.
Mitchinson, a Cambridge graduate, moved to Tokyo to manage the JPMorgan Fleming Japan fund but, as with Howard-Spink, some sceptics wondered whether he could adapt to the culture of a giant global company – a world away from the flexible culture at Framlington, where managers are given free rein.
Since his move the fund has struggled and two years on it is the fourth worst-performing fund in the Japan sector. A fund manager that pits his wits on growth stocks in the small and mid-cap sector has suffered as value and large-caps have done best. Naturally, he expects his long-term strategy to win through and, to be fair, many advisers expect this too.
Burdett says: “We were the first to buy at Framlington but have decided to wait and see at JPM due to the magnitude of difference between the two companies added to moving to Japan. A great fund manager to keep an eye on.”
But Dampier is one who continues to recommend Mitchinson’s fund. “This year has proved not to be a vintage year for Japan equities, perhaps cursed by 18 out of 22 Telegraph commentators tipping it at the start of the year,” he says.
“I think it is too early to write off either the fund or its manager. The truth of the matter is all fund managers go through poorer spells. I believe that most of David’s problems are not stock-specific – that is, problems with stocks that have gone wrong -but the fact that the market at present is just not recognising the value of some of the companies he holds in the portfolio.”
Mike Felton left F&C after the shake-up with Isis and was recruited by M&G to boost its UK equity team. He took over the M&G Capital fund in 2005, where he endured a less-than-auspicious start. His alpha-driven style and growth bias left it trailing and investors soon began to ditch the fund.
In July 2005, M&G decided to rebrand and rejuvenate the portfolio, since when performance has been revitalised. Now called UK Select, the fund has grown from £110m to £453m since Felton took charge.
It has a focused portfolio of between 30 and 40 holdings – typically larger stocks – with Felton looking to invest in his favourite stocks. He has the freedom to look anywhere in the UK market without being constrained by index. The portfolio tends to be split 65/35, with the biggest portion in low-volatility companies that generally sit in the FTSE 100. The rest is in mid and small-caps.
“Felton is a manager that the Gartmore multi-manager team has been invested with for more than five years,” Brookes says. “He had carved out a good reputation as a manager of ‘core’ portfolios, but after a short while he demonstrated that he could adapt his investment process to succeed in the Isis UK Prime fund and then M&G Select. M&G UK remains one of the largest holdings across the Gartmore multi-manager portfolios and continues to add value.”
Modray says: “Felton’s career record is excellent and he appears to have settled in well at M&G, delivering reasonable performance to date. He still has some way to go to cement his position as a ‘star’ in the sector, but I think he has a fair chance of achieving that in due course.”