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Do star fund managers really make a difference?

  • By Neil Martin
  • News
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Recent research has shown that star fund managers really do make a difference.

Data from a Willis Owen analysis of 15 investment funds who had star fund managers leave at some stage between 2013 and 2017 reveals the level of out-performance dropped dramatically after their departure.

With the fund managers at the helm, on average their funds’ annualised outperformance against relative benchmarks was 3.6%.  However, when they left and new managers took over, this dropped to 0.4%.

Star Manager Performance

Average annualised total return of funds during tenure of star fund managers Average annualised total return of relevant benchmarks Relative performance difference
15.2% 11.6% 3.6%

 

Post-Star Manager Performance

Average annualised total return of funds during tenure of new fund managers Average annualised total return of relevant benchmarks Relative performance difference
5.8% 5.4% 0.4%

 

Adrian Lowcock, Head of Personal Investments at Willis Owen, said: “There is continual debate over the impact a manager can have on the performance of a fund.  However, there is little doubt that a small band of star fund managers can have a huge positive impact, and our research shows what happens when they leave.  However, in many cases the new managers who take over still out-perform their peers, but perhaps to a lesser extent.  The difference in relative outperformance cannot be accounted for by the performance of the underlying market alone.

“This doesn’t necessarily mean that investors should follow the manager. In many instances the manager retires, or the style happens to drop out of favour and the manager has a bad patch.  Each situation is unique so it is important to consider all the facts before deciding what the best course of action to take is.”

Willis Owen’s star manager picks

Man GLG UK Income – This fund offers a highly disciplined, value-focused approach to investing in UK equity income. Henry Dixon’s proven value approach underpins this fund. He targets companies trading below the team’s estimate of the company’s asset value and those where the company’s profit stream is being undervalued relative to the cost of capital, with the additional caveat of a dividend yield of at least that of the market. The fund also targets companies with net cash balance sheets and strong free cash flows, which can lead to positive dividend surprises. As well as the focus on valuation, the process also seeks to steer the manager towards elements of quality and positive earnings momentum. Finally the fund has a greater focus on mid-sized companies.

Lindsell Train Global GrowthNick Train believe that a highly concentrated portfolio of high-quality, cash-generative, strong and easily understood business franchises will outperform the market and reduce volatility over the long term. Accordingly, they use strict criteria aligned to this belief to significantly filter the universe.  A key strength lies in the managers’ deep understanding of company strategies and their ability to see through the noise and buy stocks that are best placed to defend their business over the long term. The stock-specific and unconstrained nature of the approach results in significant differences to the benchmark. The managers’ unwavering adherence to their investment philosophy and strong stock selection have resulted in considerable long-term success.

Jupiter European – This is an unconstrained strategy aiming to find the best opportunities across the continent. Manager Alex Darwall takes a high-conviction approach; he builds the fund from the bottom up following thorough analysis of individual companies. There is a strong focus in his process on having an in-depth understanding of how a company works and on maintaining regular contact directly with its management. He invests in companies that can sustain growing profits and margins over the long term. To this end, he looks for companies with a good track record of profitability, proven product and business model, evidence of entrepreneurial endeavour, and the prospect of above-average growth opportunities.

Willis Owen is a UK online investment service providers. Founded more than 20 years ago, it has around £1bn of funds under management.

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