A new generation of star performers are quietly rising through the ranks of UK fund management. They have cut their teeth in the extraordinary market conditions that have followed the credit crisis.
Many will be familiar with star managers like Neil Woodford, soon to depart Invesco Perpetual to set up his own fund. But who are the lesser-known fund managers who are blazing a trail and set to be the next Mr Woodford?
“The last five years have been a baptism of fire for some new managers, but it has allowed some up-and-coming stars to shine a lot earlier than they may have done in normal market conditions,” says Darius McDermott, managing director of fund broker Chelsea Financial Services.
“They’ve had to deal with a lot of quickly changing scenarios and experienced an exaggerated market cycle.”
The years that have followed the onset of the credit crisis in 2008 have seen a significant rise in stock markets across the globe, interspersed with periods of profound stress and sharp falls. Those able to deliver a consistent performance against this backdrop are likely to have a robust investment process, Mr McDermott says, which is an important aspect when seeking out the star performers of tomorrow.
There are many benefits to backing a rising star fund manager, notably capturing their strong investment returns during the early stages of their career. In contrast, investors who allocate their money to the incumbent historic top performer in a sector can find that performance struggles once the manager attracts significant sums of money. This can be down to the pressure of the limelight or simply a drift away from their investment style as the assets they manage rise.
Stephen Peters, an analyst at Charles Stanley, aims to identify younger, managers who can benefit from the support of older and wiser colleagues. He cites Thomas Moore, manager of the Standard Life UK Equity Income Unconstrained and Standard Life Equity Income investment trust, as one such example. Mr Peters notes that Mr Moore has benefited from the depth of knowledge and experience on the UK equity team, led by David Cumming.
Nevertheless, the fund manager has shown he can generate an enviable track record on his own two feet, with a high-conviction approach that differs from some of his well-known peers in the income sector. Over the past three years Mr Moore has returned 58.8 per cent with the UK Equity Income Unconstrained fund versus 41.4 per cent by his peer group.
“He took over the investment trust in 2011 having an okay but not stellar track record on his UK fund. We saw that he had talent but that the Standard Life process was yet to really take off, which is what we have seen of late,” explained Mr Peters. “We also liked the fact he did something different back then to his peers, being willing to allocate and find income growth in mid and small caps.”
Old Mutual UK Income manager Stephen Message and Chris Reid of Majedie are another two to watch. Graham Duce of Aberdeen Asset Management anticipates both will flourish, given the wealth of experience that sits on their teams.
“Key factors for consideration of an “old head on young shoulders” are process, discipline, focus and clarity of thinking. Having good people on the desk helps. Think of their colleagues Richard Buxton, Simon Murphy, Ashton Bradbury at Old Mutual and Matthew Smith at Majedie,” he explains.
Peter Lowman of financial adviser firm Investment Quorum takes a different approach when identifying future stars. He pays close attention to the training and background of the managers, seeking out those with a deep understanding of corporate accounting. This, he believes, can translate into a willingness to hunt for undervalued or mispriced firms.
Mark Martin, a fund manager at Neptune, has shown an ability to do this, backing the winners in the UK mid cap sector – medium-sized businesses. His performance speaks for itself, with an impressive 88.6 per cent return versus 65.3 per cent among his peers over three years.
“The performance confirms our belief that he has the skill and ability to become one of the leading fund managers of the future,” Mr Lowman adds. Other picks include Georgina Hamilton, who co-manages the Miton UK Value Opportunities fund, launched last year.
Chris St John, who runs the AXA Framlington UK Mid cap fund, is also tipped. “We like his pragmatic approach to stock selection, coupled with an emphasis on themes within the UK economy,” David Coombs, a fund of funds manager at Rathbones, says.
When unearthing tomorrow’s fund management talent, it can also help to explore how much risk the manager has taken while generating their returns. Citywire’s fund manager ratings aim to do just this and highlight hidden gems.
They include Vishal Bhatia, who co-runs the JOHCM UK Growth fund alongside Mark Costar. He has a AA-rating for his strong risk-adjusted performance over the past three years. This means he is in the top 20 per cent of fund managers that have beaten their relevant stock market index over a three-year period. Fewer than 25 per cent of fund managers that Citywire tracks achieve this.
The managers highlighted have shown they can navigate the extraordinary market conditions that have dominated the post-credit crisis era, but they now face the challenge of proving they can continue to deliver on performance. This could prove all the more challenging as they adapt to a changing economic backdrop of rising interest rates and a shift away from quantitative easing.
Danielle Levy is news editor at citywire.co.uk