These days the pages of the trade press are awash with stories about individual fund managers. For example, Anthony Bolton and his inability to replicate his Fidelity UK Special Situations success in China, Invesco Perpetual UK equities veteran Neil Woodford, former Schroders star Richard Buxton, Bambos Hambi working his magic for Standard Life’s MyFolio range, and so on. The investment business is becoming increasingly focused on a handful of key individuals.
Recent research by The Platforum with fund selectors in both the direct and advised markets positively underlines the idea of buying people rather than funds or brands. The selectors cite largely individual attributes as important factors considered when they pick funds for multi-manager funds, model portfolios and select lists.
Fund manager tenure in particular is a fundamental piece of the puzzle – they want to assess whether performance is down to skill or luck as well as invest in someone deemed to be trustworthy. Other important human factors include consistency of process, how the manager thinks, and how he/ she responds to risk.
We see consolidation around a handful of managers with a 10-year-plus track record. Asking fund selectors who their top fund managers are, some names get mentioned time and time again: Woodford and Buxton for UK equities and Richard Woolnough at M&G for bonds. The various quantitative and qualitative screening processes adopted by the fund selectors seem to boil down to similar pools of funds and their managers. For example, Woodford’s baby, the Invesco Perpetual High Income fund, currently appears on seven out of nine direct platforms’ select lists that we have seen; the M&G Optimal Income managed by Woolnough appears on all nine lists.
The strength of influence held by these individuals is evident in the migration of Buxton from Schroders to Old Mutual Global Investors. The UK Alpha fund had about £150m asset under management prior to him taking the helm; a few months on and the fund’s assets exceed £500m. Impressive inflows into OM UK Alpha were matched by flows out of the Schroder UK Alpha Plus fund – at least partly as a result of investors switching with Buxton. The sentiment echoed by several selectors is that “you follow the people, not the brand… if they left, you would go with them.”
And who could blame customers for doing so? Data from FE shows how Buxton’s track record has beaten the market’s, and then some. Over an 11-year period, he has achieved over a 200 per cent total return, versus the FTSE 100’s total return of about 110 per cent.
As always when the story seems a little too simple, there is a big BUT. Fund selectors may not be so swayed by brand, but they do recognise its importance to advisers and end-investors. Well-established brands offer a degree of reassurance in the very uncertain world of investing. One can also derive comfort from the big brand in a marketplace ever-more focused on risk. We heard the following from one fund selector:
“Why are we all buying Woodford? We still see the importance of brand above manager, especially when creating lists and products for advisers. Advisers may in principle be against a guided fund list, but when prompted shun lesser-known foreign brands for the likes of M&G and Invesco.”
This throws up questions about the relationship between people and brands. It is all a bit chicken and egg – does a fund manager’s star quality light up its parent brand or do the biggest brands attract the best talent?
Untangling the different factors influencing decision-making is always challenging in any kind of field of research. But it stands to reason that the human face behind the fund is, perhaps, the most important factor in investment decisions.