Beware the curse of fund stars going solo: They typically suffer a drop in returns after leaving their old employer
Star fund managers who strike out on their own often attract a blaze of publicity and a huge following from investors – but research suggests savers should think twice before handing over their nest eggs.
Fund managers who go solo typically suffer a drop in returns after leaving their old employer, according to a study by AJ Bell.
Six of the seven big-name managers to leave larger fund houses in the past few years have been hit by a fall in performance, the stockbroker’s analysis found.
Fund managers who go solo typically suffer a drop in returns after leaving their old employer, according to a study by AJ Bell
Neil Woodford is the best-known example, suffering such a severe slump since quitting Invesco that he has been forced to block withdrawals at his Equity Income fund.
Laura Suter, personal finance analyst at AJ Bell, said: ‘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.
‘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 that sometimes a manager’s style may simply fall out of favour, which can lead to a period of under-performance.
For example, stock-pickers who choose cheap, undervalued companies in the hope that their value will grow may not perform so well when money is being ploughed into the expensive, popular stocks like Amazon.
This week Alexander Darwall announced he would be leaving Jupiter, taking the Jupiter European Opportunities investment trust with him. The 56-year-old plans to set up his own business, Devon Equity Management.
Though he has agreed with Jupiter not to launch any open-ended funds for the next two years, experts think his strong past performance could draw a legion of followers to throw their money into when he does.
Suter said: ‘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 out-performance.
‘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.’
During his 25 years at Invesco, Woodford’s Invesco Income (UK) fund outperformed the benchmark by an average of 4.3 per cent every year.
After he left, investors piled into his new outfit. At its peak in 2017, Equity Income was looking after more than £10billion of savers’ money.
But the Woodford Equity Income fund has under-performed the benchmark since its 2014 launch by an average of 7.2 per cent per year.
Similar situations have befallen Richard Pease since moving to Crux from Henderson; Barry Norris since leaving Neptune for Argonaut Capital; and the trio of Julia Dean, Tim Russell and Chris Rice who struck out from Schroders to found TM Sanditon.
However, Nick Train bucked the trend. Since leaving M&G in 2000, his Lindsell Train UK Equity fund and Global Equity fund have both done better than their old M&G counterparts.