Scottish Mortgage’s James Anderson is just one high-profile manager retiring soon. Here’s how to decide whether to stay the course or jump ship when a fund manager calls it a day.
James Anderson, who has managed Britain’s largest investment trust Scottish Mortgage (LSE:SMT) since 2000, is due to retire at the end of April 2022 – a move that will mark the end of an era for his firm, Baillie Gifford.
He helped to develop the asset manager’s trademark long-term, index-agnostic growth-focused investment approach and has achieved a stellar track record at the helm of Scottish Mortgage. During his tenure, the trust has achieved an impressive share price return of over 1,000%.
His co-manager Tom Slater, who has worked on Scottish Mortgage since 2009 and has been co-manager since 2015, will run the trust with the support of deputy fund manager Lawrence Burns. Anderson isn’t planning to leave the industry altogether: he will become chairman of Kinnevik, a Swedish investment firm.
While this news was reported in March last year, giving investors plenty of time to get their heads around Anderson’s departure, it raises an important question nevertheless: should you stick or twist when a well-known fund manager retires?
Experience tells Simon Evan-Cook, an independent fund analyst, that more often than not it makes sense to sell when a fund manager announces plans to leave or retire. However, he acknowledges that departures from Baillie Gifford may well be the exception to this rule because of its partnership culture and shared ethos.
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“Baillie Gifford has more of a chance than most of carrying on the good work because they run a genuine team-based structure and partnership,” he says.
“I’d like to think they may be exceptions to my rule of selling. I am reluctant to say, ‘sell Scottish Mortgage or any Baillie Gifford funds’, as they have got fantastic managers there in their own right.”
Pictured above: James Anderson of Scottish Mortgage
Timing is key
However, in most other cases he finds that selling out after a manager announces their retirement tends to be the best course of action. Unlike when a manager is sacked or chooses to join another firm, an outgoing retiring manager will have much more choice over the timing of their departure and Evan-Cook says this is important to bear in mind, as they are likely to want to leave on a high.
“There is a risk they are quitting while the going is good,” he adds.
As all investment styles go through good and bad times depending on the underlying market conditions, the fund analyst suggests there could be a chance that the fund’s style, due to timing more than anything else, disappoints in the intervening years.
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If a manager is a strong character who helped to develop the investment approach, Evan-Cook warns that there could be a “disciple effect”. This creates the potential for disagreements among the remaining team in the absence of the manager, who was previously the key decision-maker.
“There is a risk you get a power vacuum, a bit like Sopranos, Game of Thrones, or a King Lear-type situation, where the people who are left can’t agree how to do it. You see that quite often, particularly if the founder investor did things differently and was maybe a bit of a maverick.
“The problem is they probably hired a lieutenant, someone competent who learned to run money in the same way but is a different type of personality. That means you can end up with a pale imitation of the original fund manager.”
Although it was not a retirement, Evan-Cook cites Richard Buxton’s departure from Schroders back in 2013 as an example where, in hindsight, he regretted sticking with Buxton’s successors on the Schroder UK Alpha Plus fund.
“Schroders struggled to find replacements. They seemed like good fund managers, but they never really managed to get the Alpha Plus fund up and running again,” he adds.
The difference between a general fund manager exit and a retirement is that the parent company is much more likely to have planned for it, which means there is a better chance of choosing an appropriate replacement. If a fund manager leaves suddenly, it is possible that someone with a completely different ethos is appointed.
Rob Burdett, co-head of the multi-manager team at BMO Global Asset Management, views a fund manager retirement as its own subset within the ‘manager change’ category. While it is rare for his team to stay invested in a fund after a manager change, retirements tend to be exceptions to this rule.
“It is a happier event rather than someone defecting – and it almost certainly means long-term planning as well,” he says.
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This is something that Burdett is well positioned to comment on, as Gary Potter – co-head of BMO’s multi-manager team and his colleague of more than 25 years – is planning to retire at the end of March. He said that the team had started planning for this event four years ago.
Looking back over the past 10 years, Burdett highlights Ashton Bradbury’s retirement from Old Mutual Global Investors as a good example of succession planning. Years prior to the announcement, Bradbury handed his funds to up and coming talents and served as head of equities for the last five years of his career.
For example, Daniel Nickols was his successor on the Old Mutual UK Select UK Smaller Companies fund, Luke Kerr took over the UK Dynamic Equity Hedge fund, while his UK Select Mid Cap fund passed to Richard Watts. Burdett notes that his successors went on to become established names.
“Having a really good team enabled Bradbury to retire on his terms. We are still invested to this day with Luke Kerr.”
He says a more challenging example of succession planning was Andrew Green, who retired as manager of the GAM UK Diversified and GAM Global Diversified funds in 2018.
“He had a 34-year track record, which was extraordinary. He did a lot of technical analysis and had a chart-driven approach, which was unique. He worked on his own with an assistant rather than a co-manager,” Burdett explains.
“When he retired, the GAM UK Diversified fund went to Adrian Gosden who was more of an income manager, so it was a complete change of style or tack.”
Aside from well-planned retirements, Burdett’s team is more likely to sell out of a fund once a manager change is announced.
“This is rooted in the fact that we are looking after people’s life savings in these funds. Adopting a ‘wait and see’ approach doesn’t sit well when there are funds out there that we can switch into that are untainted by a change of manager,” he adds.
This raises an important point. Does the manager’s retirement present you with an opportunity to invest in a different fund or perhaps another asset class altogether?
Avoiding star managers
Daniel Lockyer, a senior fund manager at Hawksmoor Investment Management, says there are two things to look out for which should make it easier to avoid having to sell once a fund manager retires.
“Look for a team approach and avoid the star fund manager culture. If you do that in the first place, you won’t have a problem when the manager leaves,” he explains.
When Lockyer and his team carry out due diligence on funds, they spend time researching the team and looking beyond the named manager. They try to gauge the culture of the business and whether there is a succession plan in place already.
“No investor wants a fund to live or die because of one person,” he says.
He suggests looking at online videos produced by the asset management firm, as well as the fund’s monthly factsheets and regular commentaries. This should provide some understanding of how the team operates and whether there is ‘key person risk’ if the fund manager leaves or retires.
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Burdett agrees: “If a fund says it has a team approach, then try to understand who makes up the team, their experience and ages, and whether there has been any turnover on the team. Today, this information is typically available online and on platforms, such as interactive investor.”
Once a fund manager announces their retirement plans, Lockyer suggests thinking about the main reasons you own the fund in the first place. Do you like the manager and their approach? Is this unique to the fund manager or is it part of the culture of the firm? Alternatively, do you simply like the underlying market the fund has exposure to? This should help to inform your thinking on whether to sell or hold.
In the case of Baillie Gifford, he notes that Anderson was a visionary in developing the firm’s long-term, growth-focused, high conviction investment approach – something that has become engrained in the business regardless of who is managing the funds.
“James Anderson’s legacy will live on regardless of who is in charge of Scottish Mortgage. The decision of whether to sell, buy or hold Scottish Mortgage shouldn’t be linked to James Anderson,” he concluded.
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