Threadneedle Asset Management was founded in 1994 and at the end of January 2009 had nearly £50 billion in assets under management. The group has offices in 10 European countries and is expanding its distribution into Asia following the creation of a Hong Kong office in 2007. Threadneedle employs more than 100 investment professionals.
Threadneedle has ridden out the turbulence of the past 12 months relatively well, according to Madeline Forrester, its head of UK distribution, thanks partly to cost-cutting – including redundancies – and the growing popularity of star manager Leigh Harrison, the head of UK equities.
Leading the group’s strongest funds over one year to March 2 are its fixed-income offerings, including Global Bond, Emerging Markets Bond and European Bond. Global Bond returned 34.43% against the peer group’s average return of 10.18%, according to Morningstar. In contrast, the group’s hedge funds struggled in the worst year on record for the asset class.
“Any environment like this presents opportunities as well as challenges,” Forrester says. “You have to know where the stresses and strains are and hedge funds have been one area where it has been very tough. We remained liquid so we have seen outflows, but we think this is more due to liquidity than our relative performance.”
On a three-year view, UK Accelerando was the best performer in absolute terms, declining by 18.33% over the period to March 2 against a UK All Companies sector average fall of 30.67%. European Bond and Global Bond also performed strongly over three years, returning 33.59% and 41.72% respectively. The worst performers were Japan Smaller Companies, Japan and UK Smaller Companies, which each fell by between 36% and 50% over the period.
Harrison took over the management of the UK Accelerando portfolio last July, 2008. As well as the £12m fund, he runs UK Equity Income, the more aggressive UK Equity Alpha Income, and the £835m UK fund.
Hargreaves Lansdown recently added UK Equity Alpha Income to its Wealth 150 list of recommended funds, with analyst Stuart Goodwin commenting: “Leigh Harrison has breathed new life into the UK equity team at Threadneedle.”
Harrison has found favour with investors in a difficult environment for asset gathering. Forrester says UK Equity Income enjoyed over £100m of net inflows in the past year. “Leigh is a very considered investor and a good people manager. I would agree with Hargreaves Lansdown – he has given the team more confidence.” Harrison’s flagship funds have grown in popularity – UK Equity Income particularly, because of its defensive characteristics, she adds.
The fund is used by James Davies, an investment research manager at Chartwell. He says: “[Harrison] is a well-regarded manager with a good team behind him. He does core investments very well.”
Meanwhile, Absolute Return Bond started 2008 with double-digit assets under management and has already surged to £200m, Forrester says. This is one fund Davies says he is looking at closely, pointing to Quentin Fitzsimmons’s impressive returns.
Aidan Kearney, co-head of multi-manager at Credit Suisse Asset Management, has just added Absolute Return Bond to a couple of his mandates. “We looked at it a long time ago,” he says, “but as people have learned to manage the Ucits III structure I think Quentin and his team have learned a lot from that. The portfolio is a lot tighter now.”
Threadneedle’s £516m Latin America fund, run by Katy Dobson, has also attracted attention. “We have seen good inflows into our regional products including Latin America, which has held up over the year as a whole,” Forrester says.
However, the group is keeping its hedge fund range under review. “Clearly, the hedge fund performance has been a challenge,” Forrester says. “I would love to get back to historical levels of performance.
“The key for us is to focus on our core products. There are some funds where we would like to see plus-10% like we used to, but on balance I think our hedge fund performance has held up well. Nine out of 12 of our funds outperformed the Eurekahedge index in 2008,” she says.
After a rebranding in late 2007 Threadneedle’s market share doubled to 3% and Forrester says it is proportional to the firm’s assets under management, which were £86 billion at June 30, 2008, falling to £48 billion by January 31.
“Our market share with stockbrokers, life companies and platforms shows we have improved our relative position due to our corporate bond and absolute return funds’ popularity and performance – we were in the right place at the right time,” Forrester says.
There are continuing plans to bolster the firm’s distribution network as well as its presence in the marketplace. Forrester says Threadneedle’s recognition has been helped along by its growing collection of fund ratings, including accolades from Old Broad Street Research (OBSR).
Threadneedle may also hire new fund managers from outside; Forrester confirms there is not a recruitment freeze in the group, despite a recent slew of redundancies. As market conditions worsened, Threadneedle announced late last year that it was cutting up to 85 jobs.
Asked in what other ways Threadneedle is dealing with the effects of the credit crisis and falling markets, Forrester emphasises the importance of communication.
“When you get a correction like this, firstly you have to ensure the funds continue to perform, and I feel we have done this. Secondly, you have to communicate with clients. Many of them wanted detail around our exposure to financials such as Lehman Brothers, both direct and indirect, and you have to do this in an environment of treating customers fairly.
“Thirdly, you have to be as efficient as you can be. We cut back on discretionary expenditure so we can spend our dollar where it will have the most impact for our clients. We brought in prudent cost-saving measures and I think we have held up strongly against these three criteria.”
Threadneedle aims to build on its Ucits III capability with a view to launching more absolute return vehicles.
One plan from last year that was shelved was an international bricks and mortar property fund; the group decided that opportunities in Britain were more attractive than those overseas as they sold off earlier in the cycle. “That is not to say we wouldn’t revisit a global product, but we were overtaken by market events,” Forrester says. “You have to react and change strategy, and we decided our priorities were maintaining liquidity in our own funds.”
Forrester expects that markets will continue to challenge over the coming year in terms of their overall level and that investment houses will struggle to charm an increasingly cynical consumer.
“Markets will continue to be volatile. It will be tough for the end buyers of investment products, but people still need advice. On the other hand, trust in banks and financial institutions has been eroded somewhat. The theme for this year is how to reconcile these two things,” she says.