ADVISER KNOWHOW THE WEEKLY TV PROGRAMME FOR ADVISERS BY ADVISERS FUND FALLOUTS: WHAT TO DO WHEN A STAR FUND MANAGER LEAVES Neil Woodford shook up the investment community last autumn when he announced his departure from Invesco Perpetual. Earlier in 2013, Richard Buxton left Schroders for Old Mutual Global Investors. In this eventuality, what key things should an adviser consider if their client s cash is invested in the fund that s left behind?
FUND FALL OUTS: WHAT TO DO WHEN A STAR FUND MANAGER LEAVES KEY POINTS KEY POINTS FOR THIS WEEK S ADVISER KNOWHOW FEATURING AN INTERVIEW WITH STEVE BUTTERCASE, FINANCIAL PLANNER AT SENSE FINANCIAL SOLUTIONS IN NOTTINGHAM. THINGS TO CONSIDER WHEN A STAR FUND MANAGER LEAVES It s not all about the individual. For example, how strong is the team behind the manager? Keep an eye on potential outflows; the size of the fund can affect the content of the portfolio. Star fund manager status is not a guarantee of success; think of Anthony Bolton s China venture. Before following the manager to his or her new venture, make sure that you know what you are buying into. Don t make a decision on the hoof and don t follow the herd.
PROGRAMME TRANSCRIPT I think everybody who s invested in the fund has got to reconsider their position. This week we re discussing what to do when a star fund manager leaves a company. The biggest star of them all, Neil Woodford, shook up the adviser community when he announced that he is leaving Invesco Perpetual. With me, I have investment guru, Steve Buttercase from Sense Financial Solutions who will give us his views on what to do when a star manager leaves a fund, but first we will hear what other advisers have to say. What was your first reaction when you heard that Neil Woodford was leaving Invesco? Neville Pereira, Lubbock Fine First reaction was slightly one of shock, but in reality no one stays at the firm forever so, consequently you have a situation where people will move, people may have other options on the table in terms of what they wanted to do and in reality, it wasn t actually, at the end of the day, such a big issue. I think really because he s such a massive name and because Invesco have always focused on him being a star fund manager and him being the man who s delivered the returns for the fund holders, I think everybody who s invested in the fund has got to reconsider their position. What is the biggest worry? A run on the funds or that the successor is not as good? Neville Pereira, Lubbock Fine You always have that worry, you ve always got a situation where a top quality fund manager with a pure track record leaves and consequently you ve got to look at the situation of the underlying holdings. Most investment firms actually work on a team basis anyway, consequently you have people underneath that where all the research is undertaken which ultimately governs what funds and investments one goes into. If we do get a mass exodus of unit holders from the fund, the first thing that Invesco are going to sell really are liquid stocks and the fund is well known for having a lot of other stocks in it as well as the big liquid holdings and really, could it possibly get to a situation where a mass exodus leaves unit holders who are left in the fund, in some very illiquid, risky stocks which are then a much greater proportion of the fund than they are currently. Do you think you will follow Woodford to his new fund management venture? Neville Pereira, Lubbock Fine I think one needs to be slightly contrarian sometimes, not necessarily follow the herd, consequently one has to see exactly what he s doing with the new fund before one goes into it. A classic example was Anthony Bolton leaving Fidelity Special Situations, forming a Chinese fund that didn t do very well. So, why follow the herd until you ve researched the position? We just really have to see how the proposition looked when it came out, you know, I have to say on the face of it, it looks very strong and you can t really imagine a situation where Woodford would set up an organisation and not have the infrastructure behind him to make it successful. Max Skjönsberg, New Model Advisor So Steve, can you tell me what was your first reaction when you heard that Neil Woodford was going to leave Invesco? Steve Buttercase, Sense Financial Planning Well I have been loyal to Neil and his fund for many years and he is, as you say, a stellar figure in the fund management industry. So, the initial reaction was shock and what the reasons were behind his departure, but actually, after while once you ve settled down, you have to think about it as part of the big picture, as part of the holistic planning of a portfolio and realise that whilst he s an important figure, he s not the only part of the portfolio to consider. It s important not to make a decision on the hoof? I think so, I think financial planning, particularly post-retail distribution review has become much more about a more generic and financial planning
It s a bit like supporting a football team, a player or a manager moves on, you don t necessarily abandon the team. Steve Buttercase, Sense Financial Planning based strategy and the old days of looking for the star fund manager to create big returns on the shorter period of time are gone really. People want consistency, they want predictable returns and Neil was very good at delivering that, don t get me wrong, but so were his team and so was the fund as a whole. So, it s not just about the individual. The individual is important, but it s not just about the individual. Let me ask you this, do you think it s inappropriate for us in the media perhaps to give superstar status to fund managers? I wouldn t say it was inappropriate, because we all have to use hindsight to judge investment, that s part of the nature of markets and part of the nature of our role. However, I do think sometimes people attach too much importance to individual fund managers rather than to general risk management through asset allocation, diversification across a number of asset classe which is actually more important and shown to be more important over the long-term. After all, if any individual had all the answers, there would be no need for anybody else, would there? Steve, have you decided what to do because you ve had client money invested in the funds? I have yes, we have money with Invesco Perpetual and Neil s success has informed that a great deal. We may stay, but it depends what he comes up with, I mean I take the view that he will be a new fund in a new environment and we will have to look at what he s doing, what his aims are and objectives and how they fit in with our portfolio s generally. Sorry to lose him, but it s a bit like supporting a football team, a player or a manager moves on, you don t necessarily abandon the team and follow the player or the manager. You say, shame he s gone, but we ve got to find somebody in to replace him and carry on. So, that s how I see his role in my portfolio and my financial planning for my clients. Have you had any reactions from your clients, have they read about Neil Woodford? A handful, a handful, again part of the role as a financial planner is to educate and motivate your clients and to that, you have to really tell them not to be married to short-term performance, it s far more about their goals and about creating a financial plan that s viable and sustainable and that they can then adjust and move according to their life circumstances, according to their attitude to risk and so, if a fund manager leaves, well they really will be disappointed perhaps, especially if they are slightly more tuned into what s going on in the fund management industry which some are, but it shouldn t be the end of the story because the plan goes on and you have to, part of financial planning is adapting to change and circumstances and a star fund manager leaving a fund may mean a change, may not. Thank you very much Steve. You can download the cribsheet for this week s edition at citywire.co.uk/ adviserknowhow or bnymellkonam. co.uk/adviserknowhow or you can find the link and you can add your views @ AdviserKnowHow on Twitter
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