Fund managers: Lesser-known stars can shine the brightest
When picking a fund manager to invest your cash, look beyond the big names
Sunday 26 February 2012
When footballers are paid an astronomical salary, you expect them to deliver. The same applies when you put your money with renowned fund managers, who are paid a handsome sum to provide the best returns.
But just as the most expensive footballers won't be on form in every game, the most talented fund managers won't return positive results every year. Anthony Bolton, a top manager for the past three decades, saw his China fund down by around 30 per cent at the end of last year. Richard Buxton, a star stock-picker at Schroders, also saw his fund underperform the market in 2011.
And, much like upcoming, less famous footballers, there are lesser-known managers who according to Bestinvest's report Spot the Dog, have consistently provided the best returns over the past few years.
Ben Seager-Scott, a senior research analyst at Bestinvest, says David Dudding at Threadneedle is an unsung talent. "Dudding has a pragmatic process which focuses on pricing power, cash flow and sustainability of the business model, in addition to competitive advantage," he says.
One of the funds run by Mr Dudding is Threadneedle European Select, which has delivered more than 50 per cent over the past three years, far outstripping the market.
"When you are looking at investments, it is important to identify great managers, but also the weak ones – no one wants to pay a higher fee for an active manager to underperform the market," says Mr Seager-Scott.
One manager worth identifying, according to Philippa Gee of Philippa Gee Wealth Management, is Ariel Bezalel, who runs the Jupiter Strategic Bond fund. "Strategic funds are very popular at the moment – however, they are not all the same," says Ms Gee. "Ariel thinks a lot more strategically than others and deserves more attention than he receives."
Since its launch in 2008, Mr Bezalel has carefully managed the risk of the fund, says Ms Gee. "This will be more obvious if the difficulties in the global debt position deteriorate further," she adds. "His use of gilts from Australia and Norway has proved a classic example of this approach."
The tough economic environment has also seen other managers prove their worth. Gavin Haynes, the managing director of Whitechurch Securities, says Julie Dean from Cazenove Capital Management has delivered some excellent results, returning 165 per cent growth since taking over the UK Opportunities fund in 2002.
"Julie employs a philosophy that the business cycle is of the utmost importance in determining how companies will perform and how a portfolio should be positioned," says Mr Haynes. "This helped her largely avoid banks during the financial crisis. The focus of her stock selection is to identify and understand the key drivers of a company's profitability."
Some unsung managers have also battled against heavyweights in their category, such as Neil Woodford at Invesco Perpetual and Adrian Frost at Artemis, in the equity income sector. Francis Brooke at Troy Asset Management is one who has built a track record that stands up to these top players.
"Brooke has proved to be a safe pair of hands if you are seeking exposure to a defensive portfolio of UK yielding equities," says Mr Haynes. "He makes decisions for the long-term and is willing to forgo short-term, risky plays in favour of companies with steady and increasing dividend yields."
At a time when many managers are cutting dividends, Mr Brooke has managed to grow the dividend year-on-year. "All-in-all, the fund has delivered on all fronts and Brooke justifies star fund manager status," says Mr Haynes.
Despite the UK's low-growth environment, some managers have successfully picked stocks which have benefited from growth in developing countries. "Previously UK-centric industries, such as engineering, are now transacting more business overseas," said Ben Yearsley, the investment manager at Hargreaves Lansdown. "They offer something unique. It could be a specific product protected by patents, cutting-edge technology, or something less tangible such as skilled personnel, customer relationships or difficult-to-replicate distribution channels."
It is identifying these companies that has led Julian Fosh and Anthony Cross, the managers of the Liontrust Special Situations fund, to deliver some top returns. Mr Yearsley says: "They combine traditional businesses such as Diageo, GlaxoSmithKline and Unilever, with higher-risk, smaller companies. It's a UK portfolio with an international flavour."
Finding growth around the world has also benefitted James Thomson of the Rathbone Global Opportunities fund, which was more resilient than many during last year's market swings. "This was mainly down to Thomson's decision to increase the fund's cash weighting in the summer when the number of profit warnings were accelerating," says Mr Yearsley. "As a result, he sold a number of Asian and European stocks so that by November the fund was 20 per cent in cash."
There are also a number of sectors Mr Thomson avoids completely, contributing to his success. He has no exposure to banks, mining companies, which are sensitive to volatile commodity prices, nor pharmaceuticals, utilities, or telecoms, as he feels these sectors offer little in the way of growth prospects, according to Mr Yearsley.
But short-term gains are not the only criteria for success. Just like football teams, fund managers can come from the bottom and over a number of years offer some of the best results.
Emma Dunkley is a reporter for citywire.co.uk
Expert view: Philippa Gee, Gee Wealth Management
"Even the most highly regarded managers have their difficult years and the past 12 months has been a good example of that. Some major names have underperformed which has allowed others, perhaps less well-known, to shine through."
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