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Meet the fund managers who would never survive in football
The fund managers who look after our ISAs and pensions don't come under the pressure put on football managers like Roberto di Matteo and Mark Hughes. We should probably be glad.
by Gavin Lumsden on Nov 29, 2012 at 07:31Follow @GHLumsden
In one of my recent videos for the Lolly Investor Programme I compared the role of fund manager with the job of a football manager.
Following Chelsea's ludicrous decision to sack manager Roberto di Matteo (pictured above) and the less controversial despatching of Mark Hughes (pictured below) at Queens Park Rangers last week, I thought it would be fun to look at some of the well-known fund managers who have survived periods where results have not gone their way.
It’s interesting because despite the City’s reputation for short-termism and an aggressive, results-based culture, relatively few fund managers get the chop for poor performance.
Some of this is for legal reasons, with investment groups wishing to avoid being sued by underperforming fund managers they want to replace, even when, as with Mark Hughes, their record has rightly been questioned.
But some of it is because the investment world, thankfully, lacks a Roman Abramovich figure to hire and fire fund managers at will.
The Russian billionaire has bankrolled Chelsea for eight years and has become notorious for chopping and changing managers at the club. However, his removal of di Matteo after a short slump in form, six months after Chelsea won the European championship for the first time, took his idiosyncratic ownership to a new low.
Investment stars who prospered
There are some famous fund managers in charge of our ISAs and pensions who will be glad their sector is not run in such an autocratic manner.
Woodford has spoken in the past about how he came under intense pressure to change his approach at the end of the 1990s. At the time his value-driven investment style of buying shares in good companies at good prices was at odds with the tech bubble mania for hyped up dot com stocks with no profits, and the performance of his funds slumped.
Fortunately, Woodford hung on and when the dot com bubble burst his funds were the first to bounce back. Since 2000 his High Income fund has generated a total return of over 231%, way ahead of the UK stock market and most rival funds. Since launch in 1995 the fund has grown by nearly 646% under Woodford’s management, again ahead of its FTSE 350 benchmark and other funds in the UK Equity Income sector.
These magnificent returns are why the fund is so popular and why it has amassed £12 billion in investor assets. It’s a similar story with his £9 billion Income fund which Woodford launched in the same year.
Experienced investors know that the best fund managers will go through bad patches. In his prime Anthony Bolton was more famous than Woodford. He made his name running the Fidelity Special Situations fund for many years, although it was not always plain sailing.
Bolton, the comeback kid
Two years ago I compared his record with a passively-run index-tracking fund. Tracker funds don’t bother with picking stocks but buy everything on a stock market index in the belief that this is the most cost-effective approach as i) active fund managers cannot deliver good returns consistently and ii) because stock markets generally rise in the long term.
It was clear then that there were periods where the tracker fund gave Bolton a run for his money, although overall his superior stock selection meant his long-term returns trounced what simply following an index would deliver. In fact over the 27 years he was in charge of the fund he turned £1,000 into over £148,000, making him one of the most successful wealth creators the country has ever seen.
It’s a similar story with Bolton’s successor, Sanjeev Shah who took over the fund four years ago. Shah has struggled to maintain his mentor’s form, although recent performance has improved. Even with Shah’s record included, however, the fund’s long-term stellar track record is intact. Anyone who invested in the fund at launch in 1986 would have seen their money increased an incredible 3,469%, compared to a 1,090% return from the FTSE All Share index.
Bolton’s story is fascinating because he came back from retirement in 2010 to launch the Fidelity China Special Situations investment trust. Unfortunately, the trust’s shares have fallen 24% since launch, tarnishing his reputation as an investment superstar. Bolton’s problem has been that the trust’s borrowings have magnified the declines in the smaller company stocks he has focused on during a downturn in China’s economy. A lack of due diligence on Fidelity’s part also led him to invest in a few companies subsequently hit by allegations of fraud.
It’s not a great way to end his career but Bolton has promised to stay on until the fund’s performance improves. Given his achievements Fidelity and his investors have little choice but to give him time to do this and hope for the best.
Is the City soft on fund managers?
When it comes to other fund managers, however, it is surprising the City doesn’t display a more ruthless streak.
Take Andy Brough, manager of the Schroder UK Mid 250 and UK Smaller Companies funds. Brough is well known in the City partly for having been in the job so long – he has managed both funds since the 1990s. His regular appearances in the media, including a stint as a columnist in the Sunday Times, have raised his profile.
The performance of his funds, particularly the UK Mid 250 fund which focuses on companies below the FTSE 100, does not quite match this standing, however. No one can complain too much about the fund’s 210% return since launch. That beats the stock market and many of its rival funds, but not by the high margin that the likes of Woodford and Bolton achieved, an indication that over shorter-time periods his performance has been a lot less impressive. Over the three- and five-year terms that many professional investors scrutinise, his funds rank fairly low in the funds league tables.
There are signs that Brough is feeling the pressure, though, recently telling one of my colleagues in an interview that he had gone back to basics in a bid to lift the UK 250 fund out of the doldrums.
Old fund managers fade away
The conclusion that I come to is that in contrast to football, in investment a change in manager that is not the result of a poaching raid by a rival can be seen by investment groups as an admission of failure.
In the early part of this decade, Luckraft was another prominent fund manager, not as well-known as Bolton or Woodford but nonetheless highly regarded and certainly as popular as his colleague Nigel Thomas, who remains a leading investor with his successful UK Select Opportunities fund.
Then the banking crisis struck in 2008 and Luckraft’s funds, which had relied heavily on the dividends paid by the big banks, were among those hardest hit. Investors who relied on the funds for a steady source of income suffered a devastating blow to their capital. The scale of the problem is shown by the fact that over five years the funds prop up the bottom of their league table with losses of nearly 17% and 19% respectively. The funds’ returns since 2000 also lag way behind the total return from both the UK stock market and from rival equity income funds.
The equivalent performance from a football manager would have seen him dismissed long ago. AXA Framlington’s response has been to quietly leave Luckraft where he is – and to be fair he has earned a Citywire A rating this year on the back of another fund, one that invests in bonds rather than shares, AXA Framlington Managed Income , which has done well.
Instead, in 2009 the firm launched a new fund, the AXA Framlington Blue Chip Equity Income fund, under a younger manager, which it promotes with more enthusiasm than Luckraft’s battered funds.
This is one reason why there are thousands of funds in existence. Investment groups are always thinking of new fads to sell to investors. Also, in important areas like equity income, if they encounter a problem with their products they don't always address those problems head on, preferring to go round them instead.
It all adds up to a cosier existence than you get in the rough and tumble of football. Like the old soldiers in General Douglas MacArthur's famous comment, old fund managers never die, they simply fade away.
More about this:
Look up the funds
- Invesco Perpetual Income Inc
- Invesco Perpetual High Income Inc
- Fidelity Special Situations Acc
- Schroder UK Mid 250 Inc
- Schroder UK Smaller Companies Inc
- AXA Framlington Monthly Income R Inc
- AXA Framlington Equity Income R Inc
- AXA Framlington Blue Chip Equity Income R Acc
- AXA Framlington UK Select Opportunities R Inc
- AXA Framlington Managed Income R Acc Net
Look up the investment trusts
Look up the fund managers
More from us
- What does a fund manager actually do?
- Does Anthony Bolton beat a passive investment?
- Andy 'Wiggins' Brough goes back to basics to transform performance
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