Our experts reveal what action investors might take when long-serving fund and investment trust managers hang up their boots.
Longevity for active portfolio managers is, sadly, rare in an industry where performance is hyper-scrutinised and ‘styles’ can come in and out of fashion. And even the longest-serving fund managers have to retire eventually.
There has been a spate of manager move announcements recently in both the funds and investment trust worlds. Whether due to retirement, poor performance, or other circumstances, what should investors do when their manager moves on? And at what point does manager longevity become a succession planning concern?
Suggesting Darwinism is alive and well, interactive investor reveals that succeeding managers often have big shoes to fill. Some eight of the 10 longest-serving managers of funds have beaten the benchmark during their tenure at the helm of their respective fund, although it is often a team approach.
When it comes to investment trusts, nine out of 10 of the longest-serving managers have outperformed their benchmark over the long term – either over their tenure, or as far as data goes back. All data is from Morningstar and is to end April 2020 and the usual caveat applies – past performance is no guide to the future.
On the funds front, at the top of the list is Andy Brough who has managed the Schroder Institutional UK Smaller Companies for almost 33 years and counting, with co-manager Iain Staples joining the fund in 2015. The fund has grown 1,501% during his tenure (to 30 April 2020), outstripping the return of the benchmark FTSE Small Cap (excluding investment trusts) index over the same period (525%).
The second longest-serving fund manager is Sue Round, the manager of EdenTree Amity UK for 32 years. The fund has returned 1,003% during her tenure which is healthy return but trails behind the benchmark index, the FTSE All Share, which generated 1,071% over the same period.
Alistair Whyte, who has managed Aberforth UK Small Companies for 29 years, completes the top three. The fund, which has six other managers who joined at least 10 years after Whyte, returned 1,991% over the period almost spanning three decades - the highest of the top 10 constituents and greater than the 1,115% generated by the Numis Smaller Companies (ex investment companies) index.
When it comes to investment trusts, Peter Spiller is the longest-serving investment company manager, boasting 38-year tenure as manager of Capital Gearing (LSE:CGT), returning a whopping 16,121% over the period. The investment trust does not have a specified index, but the UK Retail Price, the Morningstar allocated benchmark, returned 274% over the same period.
In second position in terms of tenure is Simon Knott, who has managed the Rights & Issues investment trust for 36 years, returning 17,882% over the period, the highest among the investment trusts listed. Between 1 January 1986 to 30 April 2020 (as far as the data goes), the fund can be compared to its benchmark, the FTSE All Share, and has returned 18,364% versus 1,594% for the benchmark.
Third in terms of tenure is James Henderson who has managed Lowland for 30 years, which returned 1,177% in his tenure, outstripping the 709% generated by the FTSE All Share benchmark.
Dzmitry Lipski, Head of Funds Research at interactive investor, says: “Plain luck can propel managers over the short term, but those who are able to deliver consistently strong returns over the long term, through different economic cycles clearly demonstrate real nous which is difficult for investors to ignore. The departure of such a fund manager is therefore a difficult pill for investors to swallow, but they can take solace in the fact that departures seldom happens overnight, and succession plans are usually put into place in advance to ensure a smooth passing of the baton.
“Investors shouldn’t rush to sell out of a portfolio once the long-serving manager hangs up their boots. Behind a good fund manager lies a very capable investment team whose insight form the foundation of the manager’s convictions, underpinned by a stringent investment philosophy which isn’t moulded by the fund manager alone.
“So, while a fund manager can be here one day and gone the next, the winning investment strategy won’t necessarily be impaired beyond recognition unless change is required to readdress perennial underperformance – such as the case with Mark’s Barnett’s high profile departure from Invesco.”
Teodor Dilov, fund analyst at ii, adds: “When buying a fund, investors effectively buy the manager’s track record and the team’s capabilities and talent to potentially deliver above-market returns.
“Therefore, in many cases a manager change is followed by outflows – all fund buyers, regardless of being individual or institutional, want to see clear succession planning in place since they are dedicating funds to the manager and need stability. Ideally, a track record of ten plus years would suggest that the manager has run money through the whole market cycle and if successful that is a signal for potential alpha-generation capacity.
“However, anything could happen and having people, who are ready to step in when needed, is extremely important. Usually, that would be someone who has long history of working alongside the lead manager and have adopted their style and approach - co-managers, deputy managers or senior team members. At the end of the day, investors would require if not the same then at least very similar outcome should a manager leave, and this is the most common approach asset managers take in terms of succession planning.
“Following all that, one question would inevitably arise – what are the pros and cons for long-term track record? Generally speaking, experience is the most valuable asset not just in investments, but across all industries. Qualifications aside, a manager with long tenure would have developed a much more efficient risk attitude and understanding for the markets than a new starter, but however that would sometimes mean less challenge and lower ability to adjust should unexpected events occur.”
Top 10 longest-serving open-end fund managers and performance versus benchmark (where a fund does not have a benchmark, Morningstar will have allocated one).
|Manager||Fund name||Manager Tenure (years)||Effective||Return||Benchmark||Benchmark return|
|Andy Brough||Schroder Institutional UK Smaller Companies||32||08/06/1987||1,501%||FTSE Small Cap Ex Invest Trust TR GBP||525%|
|Sue Round||EdenTree Amity UK||32||01/03/1988||1,003%||FTSE AllSh TR GBP||1,071%|
|Alistair Whyte||Aberforth UK Small Companies||29||29/03/1991||1,991%|| Numis Smaller Companies Index
(ex Investment Companies)
|Robin Hepworth||EdenTree Higher Income||25||17/11/1994||334%*||FTSE AllSh TR GBP||110%*|
|Makiko Hakozaki||Russell Inv Japan Equity||24||30/06/1995||165%||TOPIX TR||81%|
|Justin Abercrombie||Schroder QEP US Core||24||19/02/1996||436%||S&P 500 TR||773%|
|Daniel J. Fuss||Loomis Sayles Multisector||22||01/07/1997||410%||BBgBarc US Govt/Credit TR USD||335%|
|Austin Forey||JPM Emerging Markets||22||01/07/1997||433%||MSCI Emerging Markets Index (Net)||417%|
|Colette Conboy||SLI International Trust||22||01/11/1998||470%||FTSE All World TR USD||357%|
|Paul Mumford||Cavendish Opportunities||22||16/05/1998||345%||FTSE Small Cap Ex Invest Trust TR GBP||145%|
** Performance data from earliest available data for investment
EdenTree Higher Income – from 9 December 1999
Source: Morningstar/interactive investor to end April 2020. Past performance is no guide to the future. The value of your investments, and the income from them, can go down as well as up and you may not get back the full amount invested.
|Manager||Fund name||Manager tenure (years)||Effective||Total Return||Benchmark||Benchmark return|
|Peter Spiller||Capital Gearing||38||01/01/1982||16,121%||UK Retail Price||274%|
|Simon Knott||Rights & Issues Investment Trust||36||01/01/1984||18,364%*||FTSE AllSh TR GBP||1,594%*|
|James H Henderson||Lowland||30||01/01/1990||1,177%||FTSE AllSh TR GBP||709%|
|Alistair J Whyte||Aberforth Smaller Companies||29||10/12/1990||2,096%||Numis SC Ex Invt Com TR GBP||1,348%|
|Job Curtis||City of London||28||01/07/1991||820%||FTSE AllSh TR GBP||677%|
|Katie Potts||Herald||26||16/02/1994||1,011%*||Russell 2000 Tech Index PR USD||343%*|
|Austin Forey||JPMorgan Emerging Markets||25||01/06/1994||658%*||MSCI EM NR USD||421%*|
|Hugh Young||Aberdeen Standard Asia Focus||24||19/10/1995||1,139%*||MSCI AC Asia Pacific ex Japan NR GBP||444%*|
|Matthew Dobbs||Schroder AsiaPacific||24||20/11/1995||521%**||MSCI AC Asia Ex Japan GR USD||289%**|
|Jonathan Woolf||British & American||24||03/01/1996||129%**||FTSE AllSh TR GBP||307%**|
*Performance data from earliest available data for benchmark index
Rights & Issues Investment Trust – from 1 January 1986
Herald – from 2 July 1996
JPMorgan Emerging Markets - from 30 December 2000
Aberdeen Standard Asia Focus – from 30 December 2000
** Performance data from earliest available data for investment trust
Schroder AsiaPacific – from 20 November 1995
British & American – from 9 January 1996
Fund manager tenure for investment trusts source: AIC
Performance data is Source: Morningstar
Past performance is no guide to the future. The value of your investments, and the income from them, can go down as well as up and you may not get back the full amount invested.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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.