Fund manager changes: which ones are paying off?
In some cases, a new fund manager has maintained good performance or reversed poor performance, but other changes are yet to bear fruit, writes Jennifer Hill.
28th October 2024 11:41
by Jennifer Hill from interactive investor
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There are many reasons why a fund might get a new manager, with the retirement of the incumbent manager and poor performance being chief among them.
While some investment houses have navigated the task of replacing a veteran fund manager with aplomb, others have failed to reignite a fund’s woeful performance.
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With the help of a range of investment experts, we look at some instances where a change of manager is paying off and others where the jury remains out.
Paying off
Scottish Mortgage
At the end of April 2022 after nearly 40 years at the company, James Anderson retired from Baillie Gifford and stepped down as manager of Scottish Mortgage Ord (LSE:SMT), the global equities investment trust, having managed it since 2000.
Despite it losing its star manager and Baillie Gifford’s growth investment style falling firmly out of favour, Scottish Mortgage remains on interactive investor’s Super 60 list of investment ideas.
“He built a strong reputation for seeking out transformational growth businesses and during his tenure, its market cap rose from under £2 billion to near £13 billion at his time of departure,” says Alex Watts, a fund analyst at ii. “While Anderson’s status as a phenom of growth investing meant his departure was significant, the transition was well-managed.”
The current lead manager, Tom Slater, served as deputy manager since 2009 and co-manager since 2015, and Lawrence Burns became his deputy in 2021.
“Both already had substantial experience of the fund house’s thesis for patient growth investing,” says Watts. “Accordingly, the process and philosophy of the strategy could be consistently applied as management responsibilities fully transitioned over to the duo.”
Alliance Witan
Fairview Investing director Ben Yearsley was skeptical of changes at Alliance Witan Ord (LSE:ALW) seven years ago but reckons they have paid off. The company was “a mess frankly” and “had been underperforming for years”.
The company appointed Willis Towers Watson (WTW) as investment manager in April 2017, days before completing the sale of its fund management business to Liontrust. It sold its investment platform to ii in October 2018.
The approach of WTW saw it switch to a multi-manager approach, appointing a range of managers globally with different styles, each running a best ideas portfolio. “So far, sounds dull,” says Yearsley. “And to be honest when I first looked at it, I couldn’t get excited. The early returns were average, but the portfolio has come into its own over the last two years, outperforming the sector comfortably.”
The key question for Yearsley is whether the strong performance will continue: “Consistency is key but it’s showing good promise,” he says.
It recently joined forced with Witan, which has swelled assets to around £5 billion and seen its name change to Alliance Witan. It is expected to enter the FTSE 100 index at the next quarterly review.
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Fidelity Special Values
It is hard enough to take the reins of an established top performer, but even more daunting to replace a star stock picker.
Fidelity Special Values Ord (LSE:FSV) was launched in 1979 and expertly managed by Anthony Bolton, one of the most famous investors in UK history, until the end of 2007. Bolton retired and was replaced by Sanjeev Shah in 2008, who was succeeded by Alex Wright in September 2012.
“There was a huge amount of scrutiny over whether he could follow in Bolton's footsteps,” says Darius McDermott, managing director of FundCalibre.
“He had already shown great promise in managing Fidelity’s UK smaller companies fund, where he honed his process of unearthing companies that had been unfairly judged by the market. Fidelity's faith has paid off and the fund sits in the first quartile over one, three and five years.”
Rights & Issues
When it comes to having big shoes to fill, the October 2022 handover of UK smaller companies trust Rights & Issues Investment Trust Ord (LSE:RIII) – from Simon Knott after 39 years to Jupiter’s Matt Cable and Dan Nickols – “must be right up there”, according to James Carthew, head of investment companies at QuotedData.
“Knott had built a fairly focused portfolio of UK small-cap stocks, many of which he had held for decades,” says Carthew. “The Jupiter team’s job was to preserve the best of these, take some large stock-specific risk out and introduce some of their own ideas.”
The result? Over the past year, the trust has returned to near the top of the performance league. “Some of the stocks introduced by the new team have been among the best performers,” says Carthew.
Nickols retired in June this year and Tim Service was promoted to support Cable. As the macroeconomic environment for UK small-caps improves, the prospect for further strong performance and discount narrowing looks good, Carthew adds.
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Edinburgh Investment Trust
Back in February, Imran Sattar was officially appointed the new manager of UK equity income portfolio Edinburgh Investment Ord (LSE:EDIN), following the retirements of James de Uphaugh and Chris Field.
“Much like his predecessors, Sattar believes that a flexible investment style is essential to navigating different market environments – an approach he’s adhered to throughout his career,” says Josef Licsauer, an investment trust research analyst at Kepler Partners.
During his brief tenure, Sattar has already made an impact with strongly performing stock picks paving the way for outperformance. Licsauer points to notable additions in Diploma (LSE:DPLM) and Verisk Analytics Inc (NASDAQ:VRSK).
Altogether, he regards the trust as a “compelling choice for investors seeking strong total returns over time”.
Janus Henderson European Select Opportunities
Another successful manager change, according to Watts at ii, resulted from the retirement of John Bennett from Janus Henderson Investors in August 2024. Although it hasn’t been long since Bennett’s departure, handing over the reins of Janus Henderson European Select Opportunities to his co-managers was well flagged with the firm giving a year’s notice.
“Tom O’Hara and Tom Lemaigre were selected by Bennett back in 2018, and had experience of working with Bennett and adopting the fund’s investment process before taking control,” says Watts.
“With the managers having experience both at Janus Henderson and rafts of industry experience prior to that, the fund has been left in good hands.”
Janus Henderson European Select Opportunities remains on ii’s Super 60 list.
Where the jury’s still out
Jupiter UK Special Situations
For McDermott, the changing of the guard should not bring about a change in investment style. “It’s crucial that new managers stay true to the successful investment philosophy of the strategy, while putting their own print on the management,” he says.
One manager he is confident can do that is Alex Savvides. He joined Jupiter Asset Management from JO Hambro earlier this month, taking over Jupiter UK Special Situations from Ben Whitmore, who is leaving to set up his own boutique firm, Brickwood Asset Management. The fund will be rebranded Jupiter UK Dynamic Equity I Acc.
“His [Savvides’] track record is very good,” says McDermott. “He is probably less deep value than his predecessor, but both deploy the value style. However, only time will tell. For now we retain a watching brief.”
US Solar Fund
Last December, the board of US Solar Fund Ord (LSE:USF) appointed Amber Infrastructure Investment Advisor. It follows it not renewing the investment management agreement with the previous manager, New Energy Solar Manager, launching a strategic review and abandoning a bid to find a buyer having not received any viable offers.
“The first quarter under the new team was lacklustre as technical and non-weather factors took 3.2% off solar energy production,” concedes Carthew at QuotedData.
Over the past 12 months (to 21 October), the net asset value (NAV) has dropped by -6.9% and shares in the trust are down -12.9%, widening the discount to -39.7%.
“The bad news has been compounded by the loss of $8 million of income from contracts the previous manager had put in place,” says Carthew.
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Brown Advisory US Smaller Companies
Brown Advisory US Smaller Companies Ord (LSE:BASC) was appointed to manage this US small-cap trust at the end of March 2021 following the retirement of its long-standing previous manager.
The appointment came just before interest rates started to rise in the US, which created a significant headwind for smaller companies. Over three years, both the NAV return and share price return have made small loss, of -2.4% and -1.3%. However, over one year the returns are more favourable, with gains of 14.4% and 18.9%.
Kepler Partner analyst Alan Ray is reserving judgement. “Bear in mind that historically falling interest rates and falling inflation have been good for small-caps, so there is plenty of cause to think that unfavourable macro conditions could evolve into more favourable ones in the coming year or two,” he says.
Keystone Positive Change
Yearsley has lost all hope for Keystone Positive Change Investment Ord (LSE:KPC) – an investment trust that Baillie Gifford won from Invesco in February 2021 and one he owns in his personal portfolio.
The switch saw the trust move from UK value stocks to shares in global companies making a positive social or environmental impact. In hindsight, the timing could not have been worse given that growth stocks soon began to sell off.
With steps to improve liquidity and remove the discount proving fruitless, the board earlier this month announced a merger with its open-ended equivalent, also run by Kate Fox and Lee Qian.
Shareholders can opt to receive units in the open-ended fund, which is run by the same team and has the same investment approach, or take cash at close to the net asset value (NAV) of the trust.
The trust owns five private companies, including Swedish battery group Northvolt, which account for 4.3% of the portfolio.
The board said that it was unlikely that it would be able to sell these investments before cash is returned to shareholders, and any proceeds from these sales would come at a later date.
For Yearsley, it is time for investors to cut their losses. “It was a dreadful choice by the board and has been disastrous,” he says. “I’m not sure the jury is out – I’ve reached my verdict.”
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