Resist the urge to jump ship with star fund managers

UK, July 23, 2014

Analysis by Aegon indicates that investors should feel comfortable sticking with a fund after its ‘star manager’ leaves. Nine of eleven funds tracked by Aegon continued to beat their benchmark following the star manager’s departure.

Aegon selected the eleven funds based on the reputation of the star manager, the fund size and a sufficient period of time since the star's departure. Of the funds analyzed, the average star manager's successor has been in place for five years delivering average annual outperformance against their benchmark of 1.66%.

Key drivers of continued out-performance lie in fund management culture. All of the following factors can play a role in the continued success of a fund:-

  • A team of analysts infused with the investment philosophy and process of their departed manager.
  • A robust culture of mentoring young talent creating tomorrow's stars.
  • Where investment teams do leave, firms have a greater incentive to replace them with top manager talent to fulfill elevated investor expectation.

Note: If you are unable to view the slideshow below, click here to download a pdf.


Nick Dixon, Aegon Investment Director, said:

"Funds which consistently outperform their benchmark are few and far between, and those managers who develop a proven track record of success deserve their strong personal reputations. However our analysis should be a wakeup call for investors: most funds continue to out-perform benchmarks even after the star has departed.

"So called star managers frequently rely on the ideas and technical analyses of their wider team, who will have been mentored and developed by the star to continue their legacy and investment process after their departure.

"Resist the urge to jump ship when a star manager departs and think hard about the full costs of moving your money; potential fees, out of market risk, and missing likely gains from your existing fund can all quickly add up. Often the wisest move may be to stay put."

Fidelity Special Situations

Anthony Bolton famously led the Fidelity Special Situations fund for 28 years, achieving average annual growth more than 5% above benchmark. The fund's success was largely attributed to a consistent search for value, his contrarian approach, along with courage to not join the dot com party in 1999-2000 and patience to accept periods of under-performance.

Similarly the post Bolton era, led by Sanjeev Shah and Alex Wright, has seen benchmark beating growth since January 2008, sustained by a similar strategy: contrarian approach, bold positions in financial stocks, and backing UK recovery stocks before the idea of UK recovery became fashionable.

Schroder UK Alpha Plus

Richard Buxton ran the fund for over 10 years until June 2013, profiting from a high conviction approach, creating a concentrated portfolio including less fashionable stocks such as Lloyds Banking Group. The philosophy saw the fund beat its benchmark by 4.1% annualized during Buxton's time in charge.

As a flagship fund, Schroders were determined to replace one proven fund manager with another and hired Philip Matthews from Jupiter. The fund has out-performed its index by 2.8% since July 2013, with decisive action taken over 2013-14 to drive performance through the market cycle by reducing aggregate domestic cyclical exposure.

Liontrust UK Growth

Liontrust lost significant assets when star manager Jeremy Lang departed in 2009. However investors would have done well to stay put.

New managers Anthony Cross and Julian Fosh have developed their distinct 'Economic Advantage' investment process seeking out firms with high competition barriers such as intellectual property, strong distribution channels, and high levels of recurring revenue (70%+). Their process has helped uncover exciting companies with these attributes before the general market caught on, e.g. Rotork and Rightmove.