If you tend to focus on researching funds managers, and then looking at their funds, you may have found yourself confused about the right fund to choose for your investment needs. In many cases, fund managers have been known to run some very similar funds with similar strategies. Sometimes they may run similar open-end funds (aka traditional funds) and closed-end funds (aka investment trusts).
In this article we look at three pairs of funds that are each run by the same fund manager, but each time there is a little twist that sets the two funds apart from one another. We will examine how the funds performed in 2012 and what caused the discrepancies in performance.
Fund Manager: Alexander Darwall
Open-End Fund: Jupiter European Fund (
Analyst Research)
Closed-End Fund: Jupiter European Opportunities Investment Trust (JEO)
Manager Alexander Darwall uses the same process to pick stocks at both of these Gold-rated funds. He looks for businesses with proven track records, clear business plans and above-average earnings growth prospects. But the funds’ both have different investable universes. The open-end fund invests only in continental Europe, while the investment trust also includes UK companies. In fact, one-third of assets in this trust were invested in the UK as of December 2012, making it the largest country weight in the trust’s portfolio at the end of the year.
The trust also uses gearing -- which tends to hover around 20% -- giving the trust a higher risk profile compared to the similar open-end fund. However, this higher risk has brought higher returns for the trust. In 2012, the trust gained over 30%, which was seven percentage points higher than the open-end fund.
The above listed differences between the funds will make them suitable for different investors, not least because of the different risk profiles. But, as reflected in our Gold ratings for both funds, we have high conviction in Darwell and his investment process.
Fund Manager: Matthew Dobbs
Open-End Fund: Schroder Asian Alpha Plus Fund (Analyst Research)
Closed-End Fund: Schroder Oriental Income Investment Trust (SOI)
Both of these Asian-focused funds, run by Matthew Dobbs, are rated Silver by Morningstar analysts. Dobbs follows a bottom-up process with a top-down overlay and likes to see earnings growth potential and sustainable returns in his companies. Fundamental analysis, combined with company meetings, form the foundation of Dobbs’ stock selection process.
Both funds invest across Asia, excluding Japan, but the trust’s investable universe also includes Australia and New Zealand and it has a pronounced income orientation. Although there are no specific yield targets at the trust, its board aims to pay a progressive annual dividend. In 2012 that extra remit resulted in the investment trust returning 27%, some four percentage points more than the open-end fund. Part of that can be attributed to the moderate level of gearing that’s in use at the trust.
Both funds can be used to diversify a broader portfolio, while the trust’s income bias gives it added appeal for investors craving income from their investments.
Fund Manager: John Bennett
Open-End Fund: Henderson European Selected Opportunities Fund (Analyst Research)
Closed-End Fund: Henderson European Focus Trust (HEFT)
Both these funds are run by a highly experienced campaigner in European equities—John Bennett. Bennett is a mean-reversionist: he believes supernormal returns are competed away over time, and, conversely, badly managed companies neglected by investors can present opportunities. Common characteristics of his target companies include businesses with genuine pricing power, strong cash generation, good management and compelling valuations.
What differentiates the two funds is portfolio concentration. The investment trust holds between 50 and 60 stocks, while the open-ended fund tends to hold roughly 10 more stocks. On top of that, the trust is one-tenth the size of the open-end fund based on assets under management.
The tighter list of names, as well as the use of gearing, means the investment trust is more volatile than its open-end cousin; but its returns are stronger. The trust returned 23% in 2012, some three percentage points more than the open-end fund. That said, both funds’ broad exposure makes them suitable as a core holding.
Conclusion
These examples illustrate how some well-targeted investment homework can prove very fruitful. In addition to learning about a favourite fund manager and his/her process, you should then continue to deepen your research by understanding more about the funds that they run. This knowledge will help you pick the fund that best fits with your investment objectives.
