We name funds and trusts that turned their fortunes around and scaled the performance charts.
Fund managers cannot be expected to outperform all the time, but when a fund or investment trust is going through a sustained spell of underperformance investors face a dilemma: do they keep the faith or cut their losses?
Key to deciding which option to take is understanding why the fund is going through a rough patch. If it is down to its investment style or asset class falling out of favour, investors may decide to stay the course. But if it is due to a notable period of poor stock-picking, investors may choose to act.
Some funds will turn performance around, but others will continue to falter, which may then ultimately lead to the fund management firm changing the fund manager.
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Below, we name nine funds and investment trusts that successfully went from ‘zero’ to ‘hero’ by climbing back up the performance charts.
During the financial crisis, Carl Stick’s Rathbone Income fund was one of the worst performers among UK funds, losing 34% in 2008. He was not alone in losing money that year, but he does stand out in being one of the few fund managers who have spoken candidly about the mistakes made and has vowed to learn from the experience.
In short, Stick admitted that too many of his holdings were highly leveraged and promised to take a more risk-based approach in future – buying quality businesses at the right price.
And performance turned around. Over the past decade, to 20 May 2021, figures from FE Analytics show Rathbone Income has returned 109.7% versus 89.2% for the Investment Association’s UK Equity Income sector.
Legg Mason IF Japan Equity is another example of a fund that had a tough time during the financial crisis, but then went on to bounce back, points out Darius McDermott, managing director of FundCalibre. “This is a super-aggressive small-cap Japanese growth fund. Between January 2006 and March 2011, the fund drifted lower, losing more than 75% of its value. Since then, the fund is up almost 1,000%, crushing the benchmark and all its peers.” The fund is a member of interactive investor’s Super 60 list.
Premier Miton UK Smaller Companies, managed by respected smaller companies investor Gervais Williams, had a disastrous 2019. McDermott points out that over that period the fund lost 14% - almost 40% behind the average smaller companies fund in the sector.
“The fund collapsed to just £35 million. But a put option (an investment instrument that benefits when share prices fall) on the FTSE 100 going into the coronavirus paid off, and a number of long-term positions subsequently rallied substantially, delivering an extraordinary turnaround,” points out McDermott.
The fund’s assets have significantly climbed and now stand at £215 million. Over one year, it has gained 97.2% versus 57.1% for the average UK smaller companies fund.
NinetyOne Global Special Situations, however, was a heavy faller in the Covid-19 market sell-off – losing 40% in the first three months of 2020. In contrast, the average global fund posted a decline of 15.4%. But since the vaccine breakthroughs were announced in early November, performance has notably picked up. From 1 November 2020 to 20 May 2021, the fund is up 55.3% versus a gain of 16.7% for the average global fund.
NinetyOne Global Special Situations invests in value stocks, so its style is now firmly in favour, points out McDermott. But, bear in mind, that when measuring performance since the start of 2020, the fund is still behind the sector average. The fund is up 4.4% against 20.4% for the average global fund.
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McDermott, who picked out Allianz Strategic Bond, notes: “Mike Riddell (who previously worked for M&G) took over and re-designed this fund in late 2015. For the first three years, it returned just 4% and was well behind the average peer. However, the fund was always designed to be very different to those peers.
“It has proven to be a tiger patiently waiting for its moment to strike. Performance in 2019 exploded and it then became one of the hottest funds of 2020. It was one of very few funds to make money during the Covid sell-off and then followed this up by making money in the recovery as well. Definitely a great case of zero to hero. “
Fahad Hassan, chief investment officer at Albemarle Street Partners, gave a more recent example of performance picking up. “The Nomura Global Dynamic Bond fund is a go-anywhere bond strategy that looks to deliver attractive capital gains as well as a stable source of regular income. The fund manager in charge, Richard ‘Dickie’ Hodges, prides himself on being able to reduce risk quickly in down markets and participating when times are good.
“While Dickie entered 2020 with an admirable track record versus the sector, the sell-off in credit markets in early 2020 caught him off guard. The fund suffered a sharp sell-off versus the sector and many investors were left wondering if Richard had lost his winning ways.
“Since the March low in markets, the fund was able to quickly recover its losses and go on to post attractive gains. Importantly, the fund has done well in a more difficult bond market backdrop this year. It looks like Dickie is again on the front foot and his track record can continue to build.”
Investment trusts have independent board members to exercise oversight, including holding fund managers to account. If performance is not up to scratch, the board can fire the fund manager and replace him or her internally or opt to appoint a new fund management company. When the latter occurs, a complete change of investment approach sometimes follows.
This recently played out with Witan Pacific, which last September changed its investment strategy to exclusively invest in Chinese shares and is now called the Baillie Gifford China Growth Trust (LSE:BGCG). It is still early days, but performance got off to a strong start after Baillie Gifford took over on 16 September 2020. In early February, the share price had risen by 66% since the takeover. Its share price has cooled over the past couple of months – in common with other China trusts – but a return of 20.7% from 16 September 2020 to 20 May 2021 - represents a good start and a performance turnaround compared to its previous management.
Temple Bar (LSE:TMPL) is another example of so far, so good since the sacking of Investec and appointment of RWC Partners. Since its appointment (on 30 October 2020), Temple Bar’s share price is up 65.5% against 43.4% for the average UK equity income trust. The trust, which invests in UK value shares, has had the helpful tailwind of the market rotation towards cyclical companies following the vaccine breakthroughs in November. The trust’s upturn in form resulted in it re-entering the FTSE 250 Index in March.
A longer-term zero to hero example is Monks (LSE:MNKS). In March 2015, Monks sacked one management team at Baillie Gifford and hired an internal replacement. Charles Plowden and his team (co-managers Spencer Adair and Malcolm MacColl) were appointed with a mandate to mirror the way they had successfully invested for Baillie Gifford’s institutional clients. Their change of approach took effect with a switch from a ‘value’ style of buying recovery stocks to a growth focus, searching out the ‘best of the best’. Over the past five years, Monks’ share price is up 218.2% versus 171.3% for the average global trust. Plowden retired at the end of April. He has been replaced by co-manager Adair, who has stepped up to become lead manager.
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.