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Exactly how much do the top fund managers turn over?

Exactly how much do the top fund managers turn over?

Fund managers tend to boast about the consistency as stock pickers.

An iron buy and hold discipline, based on not just the ability to find the winners but the confidence to let them run, is considered to be one of the highest virtues of a sector manager.  

A review of the numbers suggests this is not an absolute rule, however. While some of the steadiest outperformers are notable for the constancy of their portfolios, high octane returns may still – over long horizons – justify comparatively high volatility and trading costs: sometimes the hare wins. 

We took a look at portfolio turnover among six of the most consistent equity outperformers currently managing money, to see if we could spot a pattern.

Stock retention

Martin Lau (pictured), who co-manages a series of China and Asia funds for First State, is one of the most consistent fund managers in the world, receiving a Citywire rating in each of the 130 months he has been eligible over the last 11 years.

For 30 of those months Lau was AAA-rated, meaning he was among the top 5% of his peers in terms of risk-adjusted performance. Lau has managed the £461 million Greater China Growth fund, which invests in China and Taiwan, over this entire period.

Despite the remarkably consistent performance, the fund has an 88% stock retention rate over the past three years, indicating that the portfolio has sold on average just three of its 55 holdings a year.

‘We don’t try to make macro predictions,’ said Lau. ‘We simply rely on our research-driven investment process to look for quality companies, then carry out extensive analysis to try and ensure that valuations are reasonable.

‘Only then do we invest in our highest conviction ideas, which we aim to hold for the long-term, therefore resulting in low turnover of stocks in the First State Greater China Growth fund.’

Lau is not the only manager to be rated for over 100 months. David Gait, who manages a number of funds for First State subsidiary Stewart Investors, has provided investors with positive risk-adjusted returns for the past 106 months.

Turnover on his Asia Pacific Leaders fund has averaged 23.4% over the past three years, indicating it turns over a stock once every four years.

A-rated Robrecht Wouters, who manages the JO Hambro Capital Management (JOHCM) European Select Values fund, has displayed a similarly low turnover over the past three years, averaging just 16.4% for the period.

Despite the low turnover, London-based Wouters has over the past 10 years netted investors just over 200%, compared to a peer average of 83.9%.

Mixed turnover record

However, not all the managers we looked at remained consistent when it came to turnover.
Jupiter Asset Management’s A-rated Ben Whitmore is another long-term outperformer, providing investors with 96 months of risk-adjusted positive returns.

Whitmore, who has managed the Jupiter UK Special Situations fund and Income Trust for over five years has a more mixed turnover record.

During the 12 months to April 2017 turnover at the Jupiter Special Solutions fund has been 41.4%, which suggests a holding period of just over two years per stock. However, the 12-months prior turnover at the fund stood at 11.02%, and 22.97% in the year before that.

Similarly, turnover for the 12-months to April 2017 in the Jupiter Income Trust was 32.09%, climbing from 4.33% average turnover for the 12-months prior.

Whip-sawing markets

Both of these funds focus on UK-listed companies and will have been hit by the wild whip-sawing of listed equity markets following the Brexit vote

Of the manager’s analysed, A-rated Max Godwin, who manages the Japan Smaller Companies fund for Singapore-based specialist investor Eastspring Investments showed the highest stock turnover.

The fund had an average 51.72% turnover over the past three years.

Godwin, who has provided investors with 10 continuous years of positive risk-adjusted returns, earned investors 241% return on capital over that period.

Conversely, of the seven fund managers we looked at, Nick Train had the undisputed lowest turnover.

His Lindsell Train UK Equity fund has averaged 1.23%, 0.02% and 1.52% over the past three years.

‘Sometimes we are asked what it is we do all day – given we are not trading in and out of our holdings,’ Train recently commented.

‘One answer is that we are watching very closely the capital allocation decisions taken by the boards of the companies we hold – knowing that cumulatively and over time it is the calibre of those decisions that will determine the long term success, or otherwise, of our own investment decisions, made with your capital.’  

Train has been AAA-rated for 48 of the 70 months he has been eligible, netting investors a whopping 209% over that period, which compares with 68.6% average manager. 

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Nick Train
Nick Train
8/153 in Equity - UK (All Companies) (Performance over 3 years) Average Total Return: 45.91%
Ben Whitmore
Ben Whitmore
69/153 in Equity - UK (All Companies) (Performance over 3 years) Average Total Return: 27.25%
David Gait
David Gait
79/435 in Equity - Global (Performance over 3 years) Average Total Return: 52.00%
Max Godwin
Max Godwin
8/13 in Equity - Japanese Small & Medium Companies (Performance over 3 years) Average Total Return: 95.02%
Robrecht Wouters
Robrecht Wouters
46/175 in Equity - Europe (Performance over 3 years) Average Total Return: 43.27%
Martin Lau
Martin Lau
37/121 in Equity - Asia Pacific Excluding Japan (Performance over 3 years) Average Total Return: 52.46%
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