Going solo: fund managers who strike out alone underperform

Laura Suter
4 July 2019

•        Fund managers tend to perform worse after they’ve set up their own firm
•        6 of the 7 managers who have gone solo have underperformed their previous record (see table below)
•        Nick Train bucks the trend – outperforming after M&G

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“Many investors will immediately rush to follow a successful fund manager when they leave their current employer and strike up on their own, assuming they will keep up their current investment style and outperformance. However, the recent Woodford situation means some are doubting whether they were right to withdraw their money and follow the manager as he struck out alone. The news that Alexander Darwall is leaving Jupiter has raised the question again.

“The figures show that once a fund manager leaves the comfort of a big fund house and sets up their own asset manager, they perform worse than they did previously. The Woodford example has been well trodden, but in his previous years at Invesco on the Income fund he delivered annualised ‘alpha’, so outperformance of the index, of 4.3%. Since setting up alone has underperformed the index by an annualised 7.2%. 

“The trio of managers who set up Sanditon Asset Management are another example, with Julie Dean and Chris Rice outperforming their relevant indices at Schroders, but significantly underperforming in the following years. While some fund managers have outperformed the index after going it alone, such as Richard Pease and Barry Norris, they still haven’t managed to generate as much alpha as they did at their previous company.

“The only person to buck this trend is Nick Train, who actually underperformed the index on an annualised basis when he ran money at M&G, before having sterling outperformance in the years since. Part of this is that he has been running money at Lindsell Train for far longer than he was at M&G, meaning he has benefitted from investing through different market cycles.

“As always, the data doesn’t tell the whole story. There are lots of factors that can distract a manager when they set up their own business – where previously they had the support of large research teams, analysts, sales departments and marketing teams, they now have to operate in a leaner environment. But you also need to look at the character of a fund manager, and attempt to work out whether they are likely to benefit from some of the controls and checks and balances a larger organisation will put in place.

“A big part of the worse performance is the fund manager’s style being out of favour in the years after they move. We’ve seen this with Woodford and also with Julie Dean at Sanditon, as another example. It’s logical that a fund manager would strike out on their own after a period of outperformance and their investment style being in favour – no investor is likely to follow a manager who has been on a losing streak for years. But investment markets change, styles cannot be in favour forever, and investors may find that the fund manager sees markets turn against them once they’ve gone solo.”

   

Performance since start of running fund

   

Performance since start of running fund

 

Manager

Previous fund

Fund

Benchmark

Average annual alpha

New Equivalent Fund

Fund

Benchmark

Average annual alpha

Neil Woodford

Invesco Income (UK)

864.02%

364.49%

4.27%

LF Woodford Equity Income

-5.46%

34.84%

-7.24%

Neil Woodford

Invesco High Income (UK)

2403.65%

989.59%

3.58%

LF Woodford Income Focus

-23.82%

10.26%

-16.10%

Richard Pease

Henderson European Special Sits

58.62%

29.80%

4.28%

FP CRUX European Special Sits

80.95%

61.09%

1.72%

Richard Pease

Janus Henderson Euro Growth

207.60%

104.63%

3.32%

FP CRUX European

41.54%

50.30%

-1.82%

Nick Train

M&G UK Select

29.70%

30.46%

-0.65%

LF Lindsell Train UK Equity

370.29%

116.63%

6.54%

Nick Train

M&G Global Select

51.79%

63.26%

-5.80%

Lindsell Train Global Equity

122.02%

76.74%

7.13%

Barry Norris

Neptune European Opps

61.03%

33.82%

8.91%

FP Argonaut European Alpha

265.71%

193.81%

1.68%

Julie Dean

Schroder UK Opportunities

364.25%

198.10%

4.23%

TM Sanditon UK

-6.50%

26.91%

-7.77%

Tim Russell

Schroder Core UK Equity

119.98%

120.00%

0.00%

TM Sanditon UK Select

-11.82%

12.31%

-7.34%

Chris Rice

Schroder European Recovery

223.88%

175.81%

1.67%

TM Sanditon European

38.20%

58.52%

-2.18%

Source: FE/AJ Bell. Current fund performance data to 28/06/19. Average annual alpha is based on annualised performance of the fund and relevant benchmark.

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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