Who are the up-and-coming fund managers?
There’s a succession battle going on in the fund management world. With a number of the industry’s long-established stars either retiring or going through difficult periods, all eyes are now on the next generation snapping at their heels.
For example, the legendary Anthony Bolton, who was running the Fidelity Special Situations fund when many of his current rivals were still in nappies, finally handed over the reins earlier this year, while the performance of other top names are coming under scrutiny.
According to Rebecca O’Keeffe, head of fund management at financial website Interactive Investor, competition is fierce, with many of the old guard feeling the heat after a very rocky start to 2008. "Some of the kingpins of the fund management industry have found the last year very tough going," she says.
So what of the new breed who are young, hungry and full of ideas? While these fresh-faced managers are promoted as the stars of tomorrow, how do you know whether they really have the potential to make you a fortune or are just riding high on the back of a bit of good luck? It’s a thin dividing line: back a future superstar early in their career and you’ll be able to sit back and watch your investment soar, but make the wrong call and your savings could be wiped out.
We asked a string of leading investment houses and independent financial advisers to pick out some of the fund management stars of the future and explain why they are worth backing. The names that continually cropped up - detailed below - were primarily focused on the UK market, although Asia and Europe were also represented.
According to Geoff Penrice, a financial adviser with Bates Investment Services, you have to have a thorough understanding of the pros and cons of investing in the young bucks before parting with your cash. "The positives are that they are often highly motivated, with high energy levels, and even more important, tend to have new ideas," he says. "However, they may not have the experience of certain market conditions."
Rising to the challenge
Being plunged into a bear market when your entire experience has been gleaned in soar-away conditions can be extremely tough. For recent arrivals on the scene, even the volatile periods we have experienced since last summer would have presented a challenge.
Some may also lack crucial stockpicking experience, while others may not know how to react in different situations and have to rely on more experienced colleagues to point them in the right direction.
However, it’s important to distinguish between being young and being inexperienced, argues Andy Gadd, head of research at the Lighthouse Group. Just because up-and-coming fund managers have youth on their side doesn’t automatically mean that they’re green. "Many fund manager stars of the future will have followed an established career path," Gadd says. "They will have started out as part of a research department, then worked as an assistant manager, before ultimately becoming a fund manager." This trend is likely to continue.
As well as learning from established names, being successful in such a ferociously competitive industry also requires more than a liberal dose of natural talent, along with a propensity for hard work, a thick skin and fierce determination.
John Chatfeild-Roberts, author of Fundology: The secrets of Successful Fund Investing and head of Jupiter’s award-winning fund-of-funds team, knows exactly what he’s looking for when it comes to new talent. "We like people who have a real competitive instinct," he says. "They will be the managers that hate coming second." Experience as analysts and the support of a major investment house are other essential attributes.
But there certainly isn’t an over-supply of such managers at present. "We’re in a bear market and everyone is concerned about capital preservation," Chatfeild-Roberts adds. "The next crop of rising young stars tends to appear as a bull market starts to develop."
For investors, this means that research is vital. "You need to know whether a fund’s past performance is due to the individual manager or whether it is a team-driven approach," adds Andy Gadd. "Although a fund may have a ‘named’ manager, these individuals are likely to enjoy support which they will lose if they move to another company."
Of course, it doesn’t always work out. There have been examples down the years of managers once tipped for stardom that have failed to set the investment world alight. "The most high-profile demotion in recent times has been James Ridgewell of New Star," Gadd says. "Touted only last year as one of the investment company’s new stars, his UK Special Situations fund has since merged with the UK Alpha fund of which he is now assistant manager. But there is always the possibility his star may rise again."
So who are the leading lights?
Charlie Awdry, Gartmore China Opportunities
While experts are split over whether China is still an attractive investment, they all acknowledge the skills displayed by Awdry. The aim of the fund is to achieve long-term returns from investments in Hong Kong and Chinese equity markets. Over the past year to May 2008 it has delivered a 20.7% return - comfortably ahead of the 12.9% sector average. Awdry, who took over this fund from Philip Ehrmann in summer 2006, is acknowledged as one of the most exciting talents to emerge in the fund management sector.
Rob Burnett, Neptune European Opportunities
Burnett joined Neptune as an investment analyst in June 2002 and has been managing the Neptune European Opportunities fund since May 2005, as well as covering the financials sector. Over three years to May 2008, the fund has been number one in the Europe excluding UK sector, delivering a 95.2% return - well up on the 49.2% sector average.
Jamie Allsopp, New Star Hidden Value and New Star Heart of Africa
New Star’s Allsopp was identified as a star of the future in his mid-20s by the company’s founder John Duffield, who not only approved his appointment to the helm of the New Star Hidden Value fund in October 2003, but backed him with £1 million of his own savings. So it’s fair to say that Allsopp carries the weight of expectation.
As well as his main portfolio, earlier in 2008 Allsopp launched the New Star Heart of Africa fund, investing in companies based in countries such as Nigeria and Botswana, which has already got off to a good start. Allsop has been tipped as the next Anthony Bolton by Juliet Schooling, head of research at Chelsea Financial Services.
Simon Haines, Threadneedle UK Mid 250 fund
Haines took responsibility for the Threadneedle UK Mid 250 fund in January 2005 and has certainly impressed. Over the past three years to May 2008 his fund has been the fourth-best performer out of 258 rivals in the competitive UK All Companies sector, having delivered a return of 61.2% – well up on the 26.7% sector average. As its name suggests, the stated objective of the £28.1 million fund is to achieve capital growth by primarily investing in medium-sized companies in the FTSE 250 index.
Andy Gadd, head of research at the Lighthouse Group, says Haines is a "young man to watch".
Hugh Yarrow, Rathbone High Income
Earlier in 2008, the highly rated Hugh Yarrow was given responsibility for running the Rathbone High Income fund, after spending time under the tutelage of Carl Stick, one of the company’s star names. Unfortunately, the fund’s performance figures so far in 2008 don’t reflect Yarrow’s potential, because the UK Equity Income sector is experiencing a rough patch. However, Yarrow is described by Schooling as an "astute manager" with a good eye for companies.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
A bull market describes a market where the prevailing trend is upward moving or “bullish”. This is a prolonged period in which investment prices rise faster than their historical average. Bull markets are characterised by optimism, investor confidence and expectations that strong results will continue. Bull markets can happen as a result of an economic recovery, an economic boom, or investor irrationality. It is the opposite of a bear market.
This refers to a market situation in which the prices of securities are falling and widespread pessimism causes the negative sentiment to be self-perpetuating. As investors anticipate losses in a bear market and selling continues, pessimism grows. A bear market should not be confused with a correction, which is a short-term trend of less than two months. A bear market is the opposite of a bull market.