Advisers and investors have expressed their concerns over a “one-way bet” taken by the former manager of New Star’s Sterling Bond fund.
The fund, which was managed by Philip Roantree until April this year, lost 43.58% between January 1, 2008 and the end of March, 2009. This compares with a fall of 14.99% in the Investment Management Association (IMA) Sterling Corporate Bond sector.
“The fund was heavily skewed to a one-way bet on financials, a lot of it subordinated debt,” says Stephen Thariyan, who took over the fund with Philip Payne in April following Henderson’s acquisition of New Star. “When we took it on we were probably 67% in financials.”
Dean Cheeseman, the head of multi-manager at F&C, says the surprise was not the scale of the position but where Roantree had positioned the fund on the risk curve.
“Phil was left with a such a large position after weak performance, and New Star being put into administration meant he had to sell the most liquid parts of the portfolio
to meet outflows,” he says. “Knowing him as I did, however, what I’m surprised about is how much subordinated debt he had.”
The Sterling Bond fund and its manager were not known for taking adventurous calls on the market. Roantree’s bet surprised many investors who saw the fund, which had smoothly outperformed its benchmark for much of the past 18 years since launch, sharply reverse and, at trough, lose all the gains it had amassed over the past decade.
“What you want from a fund manager is knowing what they’re going to do with client’s money,” says James Davies, an investment research manager at Chartwell. “Clearly, the case with the New Star fund was the sector bet came very much out of the blue.”
The reasons behind the decision to buy so heavily into subordinated debt remain unclear, although there have been suggestions that Roantree was buying higher risk assets to increase the attractiveness of the yield component of the fund. Since the end of March, however, a rally in financials debt has seen the fund recover by 44.79%.
Thariyan remains supportive of his predecessor.“I think there are a number of good fund managers out there who did terribly badly last year,” he says.