Three veteran fund manager are retiring in the coming months. Should investors hold or fold? Hannah Smith explains how to deal with fund manager changes.
A number of leading fund and investment trust managers are stepping down from their posts this year, raising the question of succession planning. When a longstanding manager departs, should a retail investor stay put or jump ship to a different fund?
Among the star fund managers retiring in the coming months are Schroders’ Asian equities veteran Matthew Dobbs, Marlborough’s small-cap specialist Giles Hargreave, and Baillie Gifford’s Charles Plowden, who runs Monks (LSE:MNKS) Investment Trust.
Last year also saw some high-profile managers departing, including Ninety One’s Alastair Mundy, who took an extended period of sick leave, Mark Barnett who left Invesco in May after performance struggles, and Edward Lam who exited Somerset Capital to pursue other opportunities.
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Take a step back
Fund groups will usually have good succession plans in place, especially where a manager had flagged their retirement plans early so there’s time to nurture the next generation of investment talent under their leadership.
But, when a fund manager leaves, it is a good time for investors need to take step back and do a bit of self-reflection, suggests Alex Farlow, head of risk-based solutions research at Square Mile Investment Consulting & Research. He says investors should be asking themselves why they bought this fund or investment trust in the first place, what they are getting from it, and whether this is likely to continue under new management. “Will it be more of the same, and is that what you want?” he asks, “Or will they be changing their style to one that doesn’t suit you?”
A style shift?
For example, he notes that quite a few managers who use a value approach have recently stepped down, having struggled to maintain assets and performance using what has been, until recently, a very out-of-favour investing style. “A more growth-oriented manager coming in could crystallise those losses,” Farlow says.
Sometimes replacement managers bring a slightly different approach, but not a complete overhaul. The managers who replaced Mundy on the Ninety One Cautious Managed fund are value investors but with a slightly different approach. “It is not a sea-change shift, just a subtle move to try and improve the fortunes of the fund without going out on a limb in terms of stylistic tilt,” he explains.
When making their assessment of how a fund will fare under new management, Farlow says that investors should “stick to the facts”. “What’s changed, who’s coming in, what’s their experience, has the fund been shrinking, has the group been attracting fund managers, and do they seem to be resourcing their team appropriately?”
He concedes this can be hard for retail investors to know, so they will probably be focusing more on performance, especially as a lot of fund manager changes are down to performance issues. Regulatory pressure has meant funds now have to be clearer about their intended outcomes, which may also help investors decide, he suggests.
Having the inside track on fund groups’ succession planning and what’s really going on behind the scenes is where professional fund buyers prove their worth, argues Gary Potter, co-head of multi-manager at BMO Global Asset Management.
“The majority of retail investors can’t easily decide [whether to stick or twist] because they haven’t got all the information. What make a fund a good fund? The manager is not the only component,” he says. But even the experts sometimes make mistakes, he notes, showing how fiendishly difficult it can be to make the right call.
Better potential in smaller funds
Potter usually sells a fund when a fund manager leaves. He explains that this is not because he doesn’t have faith in a successor, but because there is likely another fund out there that is a better place to put investors’ money. Typically he holds smaller funds where the ‘star manager’ culture is less of an issue.
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“My advice is to understand as much as you can about the new person coming in – with Dobbs you can rest easy as there are some good people there in Asia, but what if M&G’s Richard Woolnough (who manages various bond funds for the firm) stepped down? These are large funds, and widely held.”
Potter also suggests that investors really need to know who is behind the lead fund manager – sometimes they are just the ‘frontman’ and the deputy manager is actually the one making the decisions. If they leave, this could have more of an impact on performance. So, for investors, it is important to research as much as they can about a fund and its management team, not just the big name above the door.
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