All too often investors are faced with decisions to make as a result of their fund manager jumping ship. First and foremost, investors shouldn’t panic, especially if it’s the manager of an investment trust. It’s in situations such as these that the independent board of directors really comes to the fore—after all, it’s their responsibility to appoint a new investment manager. The asset management firm can of course make a recommendation, but the board is free to disregard this and not just accept the next available team member. Indeed, they can choose to appoint a new firm if they believe there is no-one that fits the bill at the current one.
Put your trust in the independent board of directors
Each case is specific and needs to be carefully assessed. It’s unlikely that the fund’s performance will tank immediately—although in the case of investment trusts it’s usual to see the discount widen on such news. But sometimes that can create an attractive buying opportunity, too.
There have been a raft of examples recently, where managers have left, or are about to leave, and one such example of where there is consistency for shareholders is F&C US Smaller Companies (FSC). When Robert Siddles announced his resignation from F&C to join Jupiter Asset Management, the board took the rather unusual step of announcing, at the same time, their intention to serve notice on F&C, follow Siddles and appoint Jupiter as the new investment management. For shareholders, one can argue this is a great outcome: the fund is being managed in the same way, by the same man, it’s only the fund name that’s different.
It’s more usual, however, for the board to deliberate their course of action, particularly if they are taken by surprise. When Richard Buxton resigned from Schroders in March 2013, and thus Schroder UK Growth (SDU), the board’s initial response was that, because he was staying in situ until the end of June, they were comfortable in retaining the investment services of Schroder—specifically Buxton—until that time. That gave them a chance to reconsider their position and decide who they wanted to run the fund from then on. Several weeks later, in early May, the board confirmed their appointment of Julie Dean as the new manager. Ms Dean was due to join Schroders in July on completion of the firm’s acquisition of Cazenove. Further, she brings a solid track record at Cazenove UK Opportunities, which shareholders could research ahead of her taking charge. So although shareholders knew the fund would be a different beast going forward, they also knew what to expect. Hence having seen the discount widen on Buxton’s resignation, it quickly tightened once again when the board confirmed Ms Dean’s appointment.
Another unusual example is that of Fidelity China Special Situations (FCSS). Manager Anthony Bolton took the rather unconventional step of announcing a limited tenure when the fund launched, so the board always knew they’d have to find a successor in the medium term. Granted, Bolton extended his tenure by 12 months so in fact the board has had considerable time to work behind the scenes in conducting their search and decide on who the future manager should be; indeed, they confirmed his successor in June 2013, even though that manager, Dale Nicholls, won’t take up the reins until April 2014. Nicholls has been with Fidelity since 1996, and is currently in charge of the Fidelity Pacific (
Bronze Rated) fund. While it remains to be seen how successful or otherwise Nicholls will be at running such a specialist fund, at least the future management been made clear well in advance, which helps to mitigate discount volatility and remove an element of uncertainty over the fund’s future shape.
No article about recent fund manager changes would be complete if we didn’t mention Neil Woodford’s impending departure in April. While Invesco Perpetual readied their strategy behind the scenes for the open-ended funds ahead of making public Woodford’s resignation, the board of Edinburgh Investment Trust (EDIN) deliberated at their own pace and made their own decision as and when they were ready. So for around three months, shareholders in the trust had to wait for the board to reach their conclusion, but throughout that time the fund has still been run by Woodford. Unlike at the open-end funds, where investors know that Mark Barnett will take over on May 1, at EDIN Barnett is already in charge, following the board’s decision to appoint him as the fund’s manager. Not surprisingly, we’ve seen the fund’s discount start to tighten in response.
So in conclusion, don’t panic when your investment trust manager resigns—take your time in assessing the situation. Put your trust in the independent board of directors to make the right decision over the fund’s future management—or, at the very least, give them time to finalise their deliberations so that you can then make your own assessment on an informed basis.
