Wednesday marks the one-year anniversary of the beginning of the end for investment manager Neil Woodford, for many years the sweetheart of tens of thousands of investors.
Yes, June 3, 2019 was the day Woodford’s flagship fund, Woodford Equity Income, was forced to suspend dealings because it did not have enough cash to meet a wave of redemptions, with institutional investor Kent County Council leading the charge for the exit.
He had been kidding investors. Woodford Equity Income was no more an equity income fund – paying investors a steady stream of dividends while keep their capital safe – than a spitting cobra is a family pet. It was full of illiquid, and toxic, assets.
Super hero: There is a batch of fund managers, some young, working under the radar of most investors, who experts say are making a name for themselves
By now most of you will know what followed. Woodford Equity Income was dismembered, two other Woodford funds (Income Focus and Patient Capital) were given to other managers to run and Woodford Investment Management was wound up.
As for Neil Woodford, he was last reported speaking to Chinese investors about making a comeback. I imagine coronavirus and rising geopolitical tensions have kyboshed that idea, leaving him plenty of time to polish his CBE and count his fortune in his Cotswolds hideaway, in between a little bit of horse riding (his biggest passion, apart from his wife).
Yet with Woodford now a busted flush and his protege at his former employer Invesco, Mark Barnett, recently sacked for a period of woeful performance on the high profile Invesco Income and High Income funds, it begs the question as to whether active management has had its day.
By active, I mean funds run by investment managers or teams, rather than by computers programmed to track a particular stock market index (known as passive investment).
The answer is a resounding ‘no’. Some high profile and long-established ‘active’ managers such as Terry Smith (Fundsmith Equity), Nick Train (Lindsell Train Global Equity) and James Anderson (Scottish Mortgage) continue to crank out consistently impressive returns for investors.
There is also a batch of fund managers, some young, working under the radar of most investors, who experts say are making a name for themselves.
Indeed, some could be the investment stars of the future, though it must be remembered that, like markets, the fortunes of fund managers can fall as fast as they rise.
Only a few – the Smiths, Trains and Andersons of this world – have remained at the top of their profession through thick and thin.
Here are 14 fund managers who experts predict have what it takes to deliver impressive returns.
Rising: Stephen Yiu created a £350m fund in under four years
STEPHEN YIU Blue Whale Growth
Although Blue Whale Capital is only three and a half years old and has just one investment fund it is beginning to be recognised by some experts for its global approach.
The fund is managed by 42-yearold Stephen Yiu from offices in London’s Mayfair. The fund already has assets of £350million and its performance is impressive.
Since launch, it has generated an overall return of 58 per cent, while the average global investment fund has returned 19 per cent since September 2017. This year, despite the turmoil, the fund has achieved a respectable return of 10.7 per cent.
Yiu founded Blue Whale Capital after a career in fund management at Hargreaves Lansdown – then New Star, Artemis and Nevsky Capital. He is backed by his former employer Peter Hargreaves, who is chairman of the business and a big personal investor in the fund.
Born in Hong Kong and educated in Singapore and Britain, Yiu calls himself a ‘global citizen’. He reflects this in his fund while drawing on analysis from the four other members of Blue Whale’s investment team (all younger than him).
Currently, the fund is 70 per cent invested in the US and the portfolio is spread across 25 stocks. Top holdings include Adobe, Amazon, Mastercard and Microsoft, stakes held since the fund’s launch.
Like Smith at Fundsmith Equity, Yiu likes to hold big companies – preferably long-term – that generate lots of cash and have pricing power in the markets in which they operate. Portfolio changes are rare, the most recent disposals being stakes in luxury goods brand LVMH and InterContinental Hotels.
Some 100 companies are on Blue Whale’s watchlist, with a theme being ‘digital transformation’. Yiu says he steers clear of banks, oil and gas companies, biotech stocks (‘too speculative’) and retailers. He adds: ‘We’re a young investment team, playing to our strengths and understanding how digitalisation is transforming the world we live in.’
Yiu is modest enough to say that the company’s investment process is ‘improving all the time’.
Yet he is adamant he wants to cement a reputation as a ‘global specialist’ investing in ‘mega-capitalised companies’. He is not interested in smaller firms or portfolios with a specific geographic bent.
He says: ‘I want the fund to be highly liquid at all times so investors can come in and get out when they want.’
HUGH YARROW and BEN PETERS Evenlode
Unlike most fund managers, who are London-based, Hugh Yarrow and Ben Peters run their investment business from a barn conversion in Chipping Norton. The Oxfordshire air seems to work better for them than it did for Woodford and Invesco’s Barnett, who operated from Oxford and Henley-on-Thames respectively. Yarrow, a former fund manager with Rathbone Brothers, and Peters (a physicist by training) jointly manage its two main funds – the £3.5billion Evenlode Income and the £625million Evenlode Global Income – though Yarrow is lead manager on Income, and Peters the boss of Global Income.
While a rash of dividend cuts across UK and global-listed companies is not a great backdrop for funds aiming to provide investors with a steady income, Evenlode’s emphasis on investing in quality companies should see it through.
Jason Hollands, a director of wealth manager Tilney, says: ‘Yarrow and Peters are clear in how they manage money. Like Train and Smith, they buy great companies that generate lots of cash and then hold them for the long term. They buy large or medium-sized listed businesses, not market minnows.’
Both funds have 40 holdings, pay investors a quarterly income, and have a number of common holdings – the likes of Unilever and Reckitt Benckiser, which recently raised dividend payments. Global Income, however, has some 40 per cent of its assets in US-listed companies.
Over the past year, Global Income has generated a total return of 5.3per cent while Income has reported a small loss of 1.9 per cent.
Over the same period, the FTSE All-Share index has fallen 10.4 per cent. Over five years, Income has generated a return of 50.6 per cent – nearly six times that of the FTSE All-Share index. (Global Income was only launched in September 2017.)
JAMES HARRIES Trojan Global Income
Troy Asset Management was set up in 2000 to invest conservatively. Preserving your capital, it believes, is as important as making money.
Though the firm’s driving force is founder and chief investment officer Sebastian Lyon – manager of £4.7billion Trojan fund – fund manager James Harries is considered by some as a rising star.
He joined Troy in 2016 from investment house rival Newton and was the catalyst for the launch of Trojan Global Income.
Harries says: ‘The key to looking after investors’ money is to remain conservative, focus on absolute rather than relative return, and run a portfolio that is robust.’
The performance of the £203million fund looks good, given the market backdrop. Over the past three months and six months, the fund has returned 5.2 per cent and 0.8 per cent respectively. Over the past three years, it has generated a total return of just under 22 per cent.
Ryan Hughes of wealth manager AJ Bell says the fund has ‘plenty of capacity to grow’ and ‘has impressively outperformed Lindsell Train Global Equity over the past couple of years’.
He adds: ‘Harries has a clear idea of the companies he likes – quality businesses with pricing power, good cashflow and the ability to pay dividends.’
DAN WHITESTONE BlackRock Throgmorton
Unlike many other managers running retail funds (funds for individual, rather than institutional, investors) Blackrock’s Dan Whitestone is happy to profit from shorting shares – banking on them falling in price – as well as holding them in the hope of price rises.
It’s an approach that has caught the eye of Peter Sleep of wealth manager Seven Investment. He was impressed by the way Whitestone made money last year from shorting shares in Woodford Patient Capital and other ailing stocks that Woodford held – the likes of construction company Keir and litigation financer Burford Capital.
Whitestone’s specialism is smaller firms and he has managed the investment trust since March 2015 – jointly to begin with, but as lead manager since early 2018.
Annabel Brodie Smith, director of the Association of Investment Companies, says Whitestone is ‘passionate’ about smaller firms.
The trust’s short-term performance is nothing to write home about – three-month losses of 5.4 per cent – but over the past five years (when Whitestone has had a constant hand on the tiller), it has generated returns of nearly 90 per cent.
Bucking the trend: Alex Wright invests in out-of-favour firms
…and this one’s for the brave
ALEX WRIGHT Fidelity Special Situations and Fidelity Special Values
FIDELITY’S Alex Wright is a contrarian investor who targets out-offavour companies he believes will come good – maybe as a result of a management overhaul, a takeover or a change in market sentiment.
It’s an approach – referred to as value investing as it involves buying them when they appear to offer good value – that has been out of favour and is wildly different to the investment mantras pursued by the likes of Terry Smith and Nick Train, who focus on big established companies generating cash in markets they have a dominant position in.
Yet Tilney’s Jason Hollands is adamant that Wright is a manager to watch. He says: ‘Like nearly all value managers, including the legendary Warren Buffett, Wright’s funds have under-performed recently, but if the investment style tables turn, the two funds he manages should be in a good position to benefit.’
The performance numbers do not look good. Over the past year, the £2billion Fidelity Special Situations fund and £501million Special Values investment trust have recorded eye-watering losses of 20 per cent and 27 per cent. But Hollands says Wright has been successful in the past and sees no reason why he cannot come good again. Two funds for the brave investor.
Other managers (together with details of funds they manage and their relevant identification codes) that experts believe have something of a magic touch include: Laura Foll: co-manager of trusts Law Debenture (3142921), Lowland (0536806) and Henderson Opportunities (0853657). Alastair Laing: co-manager of trust Capital Gearing (0173861). Praveen Kumar: Baillie Gifford Shin Nippon (BFXYH24). Abby Glennie: Aberdeen Smaller Companies Income (0806372). Tom Slater: co-manager, Scottish Mortgage (BLDYK61), Simon Brazier: Ninety One UK Alpha (3107522). Mark Heslop and Mark Nichols, Jupiter European Growth (7510632).
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