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Poor performance of star managers who go solo

10 July 2019

AJ Bell has found fund managers that choose to go solo fare worse than they did in their previous roles.

The investment platform said six out of seven leading fund managers who have struck out alone have underperformed their previous record.

Neil Woodford (Invesco), Richard Pease (Henderson), Barry Norris (Neptune), Julie Dean (Schroders), Tim Russell (Schroders) and Chris Rice (Schroders) all saw a decline in their performance once they left the comfort of a big house fund. Only Nick Train (M&G) has bucked the trend of underperformance, says AJ Bell.

Laura Suter, personal finance analyst, AJ Bell, commented: “Many investors will immediately rush to follow a successful fund manager when they leave their current employer and strike up on their own, assuming they will keep up their current investment style and outperformance. However, the recent Woodford situation means some are doubting whether they were right to withdraw their money and follow the manager as he struck out alone. The news that Alexander Darwall is leaving Jupiter has raised the question again.”

While the Woodford example has been well trodden, his previous years at Invesco saw him outperform the index by 4.3%. Since setting up alone, he has underperformed the index by an annualised 7.2%.

The trio of managers who set up Sanditon Asset Management are another example, according to AJ Bell, with Julie Dean and Chris Rice both outperforming their relevant indices at Schroders but underperforming in the following years. In contrast, Nick Train underperformed the index on an annualised basis when he ran money at M&G, before enjoying a “sterling outperformance” in the years since; a trend AJ Bell said could be due to running money at Lindsell Train far longer than he was at M&G, meaning he has benefitted from investing through different market cycles.

Suter continued: “As always, the data doesn’t tell the whole story. There are lots of factors that can distract a manager when they set up their own business – where previously they had the support of large research teams, analysts, sales departments and marketing teams, they now have to operate in a leaner environment. But you also need to look at the character of a fund manager, and attempt to work out whether they are likely to benefit from some of the controls and checks and balances a larger organisation will put in place.”

Suter said a big part of the worse performance is the fund manager’s style being out of favour in the years after they move.

She added: “It’s logical that a fund manager would strike out on their own after a period of outperformance and their investment style being in favour – no investor is likely to follow a manager who has been on a losing streak for years. But investment markets change, styles cannot be in favour forever, and investors may find that the fund manager sees markets turn against them once they’ve gone solo.”

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