Star Fund Managers

Life beyond the stars

16 July 2014
Summary.…

 Funds run by ‘star managers’ typically continue out-performing after the star departs

 A firm’s culture is critical – key attributes sustain post-handover, e.g.

− ‘Star managers are not islands – they are supported by a team of analysts
originating ideas and technical valuations
− Such teams often remain in place after a star’s departure
− Firms take trouble to mentor younger talent and create tomorrow’s stars

 Firms also have other attributes which sustain after a manager’s exit:-
− Investment philosophy
− Process
− Global research and ideas

 Where entire investment team’s do leave, firms have every incentive to replace with top
manager talent

2
New managers typically continue their predecessor's
out-performance ….
% pa % pa
Star Start End growth New growth
Fund
Manager Month Month Vs Manager Vs
benchmark benchmark

Sanjeev Shah
Fidelity Special Situations Anthony Bolton Dec-85 * Jan-08 5.3% 1.9%
& Alex Wright

Schroder UK Alpha Plus Richard Buxton June-02 June-13 4.1% Philip Matthews 2.8%

Anthony Cross /
Liontrust UK Growth Jeremy Lang Apr-96 Mar-09 1.8% 2.6%
Julian Fosh

Henderson EU Select Opportunities Roger Guy Dec-93 Jan-10 3.8% John Bennett 2.2%

Schroder European Opportunities Chris Rice Dec-02 June-13 0.9% Steve Cordell 5.3%

Jupiter European Special Situations Leon Howard-Spink Apr-01 July-05 6.4% Cedric de Fonclare 1.6%

Axa Framlington UK Smaller

Rodger Whiteoak July-01 Feb-08 8.2% Henry Lowson 2.3%
Companies

Schroder Tokyo Dennis Clough June-89 Mar-04 7.0% Andrew Rose 0.8%

Schroder Income Nick Purves Oct-03 May-10 2.2% Nick Kirrage 1.8%

Jupiter Financial Opportunities Phillip Gibbs June-97 Oct-11 12.4% Robert Mumby -2.4%

Fidelity European Tim McCarron Jan-03 Sept-09 0.8% Samuel Morse -0.6%

* The fund started in 1979, but Aegon has data since 1985 3
 Fidelity Special Sits has out-performed by 2% pa
since Bolton departed .…
Fidelity Special Sits 1985-2007 Fidelity Special Sits 2007-14

3,500 80

3,000
60

2,500
40
2,000

20
1,500

1,000 0

500 -20

0
-40
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Anthony Bolton FTSE All-Share TR Post Bolton era (Sanjeev Shah & Alex Wright) FTSE All-Share TR

 Consistent application of contrarian / value approach over 1979-2014, e.g.

− Courage to not join the dot com party in 1999-2000
− Bold positions built in financial sector over 2010-11
− backing domestic recovery stocks over 2011-13, e.g. house builder Redrow, when forecasters predicted poor economic recovery in the UK
 Active mentoring of more junior managers by Anthony Bolton
 Patience to accept periods of under-performance, e.g. 1998-99, 2011

Source:- Lipper 4
 Schroder UK Alpha Plus:- out performance since
Buxton departed .…
Schroder UK Alpha Plus 2002-13 Schroder UK Alpha Plus 2013-14

300 18

16
250
14

200 12

10
150
8

100 6

4
50
2

0 0

-2
-50

Richard Buxton FTSE All-Share TR Post Buxton era (Philip Matthews) FTSE All-Share TR

 When Buxton left, Schroder replaced one proven fund manager with another:- Philip Matthews joined from Jupiter
 High conviction fund with ~ 55 holdings
 Decisive action taken over 2013-14 to drive performance through the market cycle:-
− Reduced aggregate domestic cyclical exposure of the fund in 2013
− Raised holdings of mega caps during 2013-14, e.g. Shell, Glaxo, BP, HSBC

Source:- Lipper 5
 …. and broadly in line with Buxton’s new OMGI fund

Schroder UK Alpha Plus & Old Mutual UK Alpha 2013-14

20.0

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

-2.0
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14

Schroder UK Alpha Plus Old Mutual UK Alpha

Source:- Lipper 6
 Liontrust UK Growth:- investors would have done
well to stay put after Jeremy Lang departed .…
Liontrust UK Growth 1996-2009 Liontrust UK Growth 2009-14
300 160

140
250
120

200
100

150 80

60
100
40

50
20

0 0

Jeremy Lang FTSE All-Share TR Anthony Cross / Julian Fosh FTSE All-Share TR

 Liontrust was eager to replace star manager Jeremy Lang with top talent when he left in 2009:-
− Anthony Cross had been at Liontrust since 1997 developing a distinct investment process
− Anthony and Julian XXX have over 50 years’ combined investment experience – 40 years when they took over the fund
 They have applied the ‘Economic Advantage’ investment process, designed to identify businesses with high barriers to competition:- intellectual property,
strong distribution channels, or high levels of recurring revenue (70%+)
 Intellectual conviction enabled them to spot exciting companies with these attributes before the general market got excited, e.g. Rotork, Rightmove, Compass

Source:- Lipper 7
 Henderson EU Select Opportunities:- no need to
panic when Roger Guy departed ….
Henderson European Select Opportunities 1993-2009 Henderson European Select Opportunities 2009-14

700 70

60
600

50

500
40

400
30

20
300

10
200

100
-10

0 -20

Roger Guy FTSE World Europe ex UK TR GBP John Bennett FTSE World Europe ex UK TR GBP

Source:- Lipper 8
 Schroder European Opportunities .…

Schroder European Opportunities 2002-12 Schroder European Opportunities 2002-12

220 25

200

180 20

160

140 15

120

100 10

80

60 5

40

20 0

-20 -5

Chris Rice FTSE World Europe ex UK TR GBP Steve Cordell FTSE World Europe ex UK TR GBP

Source:- Lipper 9
 Jupiter European Special Situations .…

Jupiter European Special Situations 2001-05 Jupiter European Special Situations 2005-14

50 140

40
120

30
100
20

80
10

0 60

-10
40

-20
20
-30

0
-40

-50 -20

Leon Howard-Spink FTSE World Europe ex UK TR GBP Cedric de Fonclare FTSE World Europe ex UK TR GBP

Source:- Lipper 10
 Axa Framlington UK Smaller Companies .…

Axa Framlington UK Smaller Companies 2001-08 Axa Framlington UK Smaller Companies 2008-14

200 120

100

150
80

60

100
40

20
50

-20
0

-40

-50 -60

Rodger Whiteoak FTSE Small Cap (X It) TR Henry Lowson & Chris St John FTSE Small Cap (X It) TR

Source:- Lipper 11
 Schroder Tokyo .…

Schroder Tokyo 1989-2004 Schroder Tokyo 2004-14

120 80

100 70

60
80

50
60

40
40
30
20
20

0
10

-20
0

-40 -10

-60 -20

Dennis Clough Topix TR Andrew Rose Topix TR

Source:- Lipper 12
 Schroder Income .…

Schroder Income 2003-10 Schroder Income 2010-14

110 70

100
60
90

50
80

70 40

60
30
50

20
40

30
10

20
0
10

0 -10

Nick Purves / Ian Lance FTSE All-Share TR Nick Kirrage FTSE All-Share TR

Source:- Lipper 13
 of course

not all funds continue to out-perform ….

14
 Fidelity European .…

Fidelity European 2003-09 Fidelity European 2009-14

200 50

180
40
160

140 30

120
20
100

80
10
60

40 0

20
-10
0

-20 -20

Tim McCarron MSCI Europe ex UK TR USD Samual Morse MSCI Europe ex UK TR USD

Source:- Lipper 15
 Jupiter Financial Opportunities .…

Jupiter Financial Opportunities 2003-11 Jupiter Financial Opportunities 2011-14

1,000 60

900
50
800

700 40

600

30
500

400
20

300

200 10

100
0
0

-100 -10

Phillip Gibbs MSCI ACWI/Financials TR Robert Mumby MSCI ACWI/Financials TR

Source:- Lipper 16