In the wake of the Woodford saga, the very cult of the star fund manager is being called into question. While big name investors – Neil Woodford, Anthony Bolton and Nick Train to name just a few – have long attracted a loyal following, savers are now starting to question the concept of putting their faith in a single person.
Despite stellar performance over the long term, Nick Train’s Lindsell Train UK Equity fund last month suffered its worst month for outflows since its 2006 inception, according to Morningstar data. Could this be a sign that investors are turning away from these investment superstars and looking for an alternative?
“One of the problems with a star manager culture is that it can lead to a culture of corner-cutting and of ignoring rules when the sole decision-maker is convinced they should be ignored," says Thomas McMahon, senior analyst at Kepler Partners.
The alternative, then, is to veer away from funds with a single manager at the helm and opt for one run by a team of investors. The benefits of such an approach are myriad: there is no key man risk – the danger of the main man retiring, moving or losing their touch; there is more accountability as a team of managers will question and challenge each other; and, crucially, there is little room for ego.
Morningstar analyst Louise Babin says: “With a team-based approach, you get a breadth of expertise and experience, you have managers with different styles, skills and background and that means there is more rigorous discuss and debate about what to invest in.”
Annabel Brodie-Smith, communications director of the Association of Investment Companies (AIC) agrees: “Some investors might prefer a team approach where they know there are a group of managers who can debate concepts, provide different perspectives and bounce ideas off each other.”
Babin points to the Silver-Rated Schroder Recovery fund as one example of a fund thriving under a team of managers. It is run by investment duo Kevin Murphy and Nick Kirrage and takes a value approach to investing, choosing companies the pair believe are being overlooked by other investors.
The Silver-Rated Orbis Global Equity fund, meanwhile, has five managers, each of whom manages a slice of the assets. Under this strategy, each manager takes decisions for his piece of the pie but the effect of his choices on the fund as a whole are, as a result, limited.
Dan Brocklebank, director of UK Orbis Investments, says this approach also encourages debate between the managers, who don’t always agree on investments – one such example is when the fund invested in Russian bank Sberbank in 2014, when Russia was deeply unpopular after invading Ukraine and suffering from falling oil prices.
He explains that when a major disagreement arises in the team, they carry out more research to reduce the disagreement and to take better decisions. “But if it’s something we cannot analyse than we have to agree to disagree. Over time we can look back to see who was right and why,” he explains.
Brocklebank says he would be more worried if the team were not frequently disagreeing with eachother: “The reality is that even the best investors make mistakes and buy a company that will not outperform. If you’re not worried about being wrong, chances are that you are becoming too complacent.”
A team approach can also be more common for funds investing in broader areas, such as bonds, which may require entire teams of analysts to assess the market for opportunities, or global equities, where it is difficult to be an expert in all areas.
In the fixed income space, Babin likes the BNY International Bond and BlackRock Fixed Income Global Opportunities funds – both Bronze-Rated by Morningstar analysts – which have returned 6.8% and 4.6% respectively year to date.
Key Man Risk
But key man risk may be more about the culture of a firm rather than how many managers are involved in investing a fund’s assets.
McMahon points out that even in funds where there is a single manager at the helm, there may be an extensive team assisting with research. He says investors would do better to concentrate on the resources and strategy not the name on the fund.
Nicola Cornish managing director at Clever Adviser agrees: “We believe it’s less a question of manager or fund, and more a question of does the evidence stack up and is that fund providing sufficient value?”
Brodie-Smith says that many of these “solo funds” will also have a capable deputy manager who knows the strategy well. If nothing else, this is a key part of succession planning and future-proofing the fund in case the lead manager should move to a different company or retire.
An example of this style that McMahon likes is the Silver-Rated JPMorgan Emerging Markets Equity fund, which has been headed up by Austin Forey since 1997. “His experience is valuable in such a diverse and rapidly changing sector, but he also draws on the analysts of a wide team,” he explains.
But investors should not rush to exit a fund simply because they are concerned about relying on the skill of one manager. Brodie-Smith says that after the Woodford fiasco it’s natural to question whether star fund managers are worth following, “but investors need to avoid a knee-jerk reaction and consider every individual case".
“As ever, it’s most important that investors consider whether the investment is likely to meet their financial goals and continues to match the level of risk they are willing to take,” she says. “It’s always best not to rush any decision but to take your time to do your research."
