Jeff Prestridge: will investment teams usurp star fund managers?
The star manager hero cult is dying, our columnist argues, but teams can curb the rise of the ETFs.
3rd November 2020 09:00
by Jeff Prestridge from interactive investor
The cult of the individual manager is dying, our columnist argues, and only teams can rival the rise of the ETFs.
Index-tracking funds are the tech disrupters of the investment world. Slowly, but surely – and Amazonian like - they are making inroads into the retail investment market previously served by ‘active’ (living, breathing) fund managers.
For index trackers, think Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL) , Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). For active fund managers, think the dying High Street.
OK, maybe the analogy is a bit over the top, but there’s no doubt that index tracking funds – or exchange traded funds - are winning the battle for the wallets of us lovely investors.
They’re low cost, and while they cannot push back the tide of falling stock markets, they’re predictable – in terms of what they do - whether tracking the performance of a specific index such as the FTSE 100 or the price of a commodity such as gold.
It's no coincidence that online fund platforms now readily embrace index-tracking funds within their recommended fund lists – something they haven’t always done.
Does this march of the index trackers mean that active fund management has had its day? Of course not, although I do feel that the cult of the big personality fund manager is waning.
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Over the past few decades, there has rarely been a time when a small group of fund managers have not enjoyed cult-like status among investors and investment advisers – those who construct investment portfolios on behalf of clients.
Think Anthony Bolton, who enjoyed outstanding success as a UK fund manager at Fidelity – running its UK Special Situations fund with distinction for nigh on 28 years up until late 2007.
Think Mark Mobius, who at Templeton was Mr Emerging Markets for more than 30 years, operating its Templeton Emerging Markets (LSE:TEM) Investment Trust with aplomb.
More recently, the likes of Terry Smith (Fundsmith Equity) and Nick Train (LF Lindsell Train UK Equity) have achieved hero status, attracting big money on the back of their continued investment success.
Yet Smith and Train may be the last of this cult breed. For that, we must ‘thank’ Neil Woodford, who built an investment operation in Oxford (Woodford Investment Management) that was solely based around his investment skills.
Woodford sat at the apex of the investment management structure – and there was little beneath him in terms of support or challenge.
So when things went wrong – or started to go wrong – it was Woodford alone who had to pick up the pieces. It was too big a task for one individual. Woodford has done irreparable damage to the cult of the star manager, although I imagine his investors are more bothered about the hole he has blown in their finances.
In my conversations with fund managers in recent weeks I have begun to see a little bit of a sea change – with the focus moving from the individual fund manager to the investment team behind a fund or investment trust.
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For example, I recently spoke to James de Uphaugh of Majedie Asset Management. Earlier this year, Majedie was appointed to manage Edinburgh Investment Trust (LSE:EDIN), a UK equity income fund previously run by Invesco’s Mark Barnett (Barnett has since left Invesco).
Although Uphaugh is the named manager on the trust’s literature, he says it is not about him – but him and the 18 other colleagues at Majedie that all input into the trust’s management.
The trust’s board, he says, wanted Majedie to run the trust, not just him. The whole, not the individual.
Vanguard is an investment house best known for its index-tracking expertise. But it runs a lot of ‘active’ portfolios on behalf of investors and it appoints outside investment teams to run them.
So, for example, Its Vanguard Global Equity Fund has half of its assets managed by Baillie Gifford and half by Wellington. Vanguard understands the philosophy and investment process underpinning the two teams.
James Norton, a senior investment planner at Vanguard, says it is “not healthy” for investors to be reliant on one star manager. He uses a sporting analogy to drill home his point – comparing Tiger Woods, the golfing world’s equivalent of a star fund manager, to football team Barcelona.
While Woods was untouchable when on top of his game, the tide eventually turned against him. In contrast, Barcelona delivers year in, year out – and has a clear process and philosophy in place. Long-term excellence.
It is an interesting argument. Maybe investment teams will prevent the disrupters (index-trackers) from taking over the investment asylum.
Jeff Prestridge is personal finance editor of the Mail on Sunday. He is a freelance contributor and not a direct employee of interactive investor.
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