Ever since the Woodford scandal, wealth managers and other firms have been placing a much greater emphasis on the team that surrounds the star manager in order to dodge what is known as “key person risk” – the damage caused by the loss of a critical individual.
Jonathan Miller, who is director of manager research at Morningstar, said that in recent years there has been a clearer move away from espousing that a fund is run by a star manager.
“As part of our qualitative research on funds we need to assess how the fund manager interacts with their team, how decisions are made or shared, whether there is a deputy manager, and how succession planning is thought about,” he said.
“We also look to meet people outside of the lead manager(s) to gain a broader view. Over the last few years there has been a clearer move away from espousing that a fund is run by a ‘star manager’.”
It is because of their consistent teams and backgrounds that Mr Burgeman said Mr Smith and Mr Train still warrant a place in investors’ portfolios.
“Both managers have a very defined style to how they invest which a) has led to them establishing excellent longer-term track records, and b) helped them weather the dreadful post-2020 Covid markets.”
Now read: Fund managers criticised over high fees despite poor performance
What makes a good fund manager?
Repeatable success
A great track record is one thing, but an investor should weigh up the extent to which the strategy that has previously delivered success will be able to keep delivering high returns.
“A key consideration is whether a manager with seemingly great performance numbers has done this primarily through exercising sound judgement based on a rigorous process, or simply got lucky,” Mr Hollands said.
A solid team
A manager who has enjoyed plenty of research support at a larger firm could struggle when setting out on their own.
If a manager has recently moved to a smaller firm, sit tight and see how they do before following them.
A clear strategy
When deciding whether to put your trust in a fund manager, check they have laid out a clear strategy for delivering high returns that makes sense to you.
Mr Hollands said: “I would avoid investing in seat-of-the-pants managers who can’t clearly articulate their approach and expect investors to put trust in their cleverness.”
If a manager suddenly deviates from their strategy, this could be a red flag. “It was there in plain sight with Woodford, given the radical shift away from FTSE 350, dividend-generating stocks,” said Mr Hollands.
Who are the British star fund managers of tomorrow?
Investors should never pick a fund manager just because of their media profile. There are some very strong managers who have delivered above-average returns, but flown largely under the radar.
Mr Hollands tipped Hugh Yarrow, who manages the TB Evenlode Income fund, which has delivered 135pc over the last 10 years – double that of the FTSE All Share – as well as Michael Boyd and Giles Warren.
Their little-known Guardcap Global Equity fund has “outperformed the hard to beat MSCI World since launch,” Mr Hollands said, returning 182pc versus the 153pc from the index.
“Despite Fundsmith-like returns, few investors will have heard of them.”
Now read: Named and shamed: the worst-performing investment funds
