Bill Mott’s new Psigma fund raked in £108m in its three-week offer period despite the fund being brand new with no track record and Mott not having managed a fund for more than three years.
This is a prime example of the star fund manager phenomenon and some industry figures believe the concentration on so-called star funds means some impressive funds are overlooked.
It is generally agreed that Fidelity’s Anthony Bolton, Invesco Perpetual’s Neil Woodford, Jupiter’s Anthony Nutt, Axa Framlington’s George Luckraft and Rathbone’s Carl Stick are among the managers who join Mott in the stellar category.
Chelsea Financial Planning director Darius McDermott is not surprised Psigma had so much backing.
He says: “Psigma has raised a lot of money due mostly to Bill Mott’s star quality. He has not managed a fund since 2003 but he has the experience.”
McDermott says a manager should not be given star fund manager status unless he or she has delivered consistently in all market conditions for at least a five-year period.
Blackadders Financial Services director Keith Thomson says a combination of stability, outperformance, below average risk and reasonable charges makes for a genuine star fund manager.
But do some star fund managers get a better reputation than they deserve? The industry consensus is yes.
A lot of young managers get star status prematurely, says McDermott, who cites New Star’s Jamie Allsopp and James Ridgewell as two managers who shot to promin-ence in their first year but underperformed in their second as examples.
Seven Investment director Justin Urqhuart-Stewart says: “I do not want someone who is erratically good for a few years then disastrous after that. Star reputations should build up over time.”
Churchill Investments head of research Warren Perry claims managers with funds performing well in fashionable sectors often get undue accolades for doing very little.
He says the technology boom in 1999 and 2000 saw a breed of star fund managers emerge and this is similarly happening today in the property and emerging markets sectors.
Perry says: “If you are a fund manager running a fund in a hot sector, then returns can look spectacular but investors need to determine how much the fund manager is adding above the sector performance.”
Thomson says investors need to know how much control the manager has over stockpicking – if it is a team approach, then the manager alone should not have a star reputation.
He says: “There is the question of how much the manager controls the process. Is it a team approach? Does the manager do all the stockpicking? Is he the genius behind the fund?”
He adds that many companies are keen not to rely on an individual, preferring a team approach.
But marketing departments love having a name for their campaigns. Star status can be as much a result of marketing as fund performance.
Thomson says: “There is an awful lot of marketing going on. We live in a world where celebrity is celebrated. Everyone likes someone famous, actors, singers, business figures and now fund managers.”
Perry agrees that marketing has a big part to play and points out that when a fund is doing well, the manager is promoted as superman but if they leave the company the marketing team will claim that the fund will not be affected because the manager worked in a team.
In most cases, Perry doubts that individual fund managers will influence investors’ decisions. He claims brand recognition is likely to have a much bigger effect because people trust the brands they know and perhaps already use.
He says: “The average investor is swayed by brand recognition rather than fund manager recognition. That is why life company funds are enormous despite being so terrible. People will invest where they feel comfortable with the name.”
There are over 3,000 funds available to UK investors and 50 per cent of investors’ money goes into only 150 of them. The equity income sector is particularly focused on a select group of funds and, as Perry puts it, is a “who’s who of star fund managers”.
McDermott agrees that there is “an unequal balance of money” in that sector. He says: “Woodford, Nutt, Stick, Brough, Luckraft and Frost take one-third of all the money in equity income. Woodford takes around 16 per cent alone.”
Is this concentration on select funds overshadowing other quality funds and fund managers?
McDermott says: “Standard Life Investments UK opportunity fund manager Mark Niznik deserves star fund manager reputation. His performance is excellent and people are starting to buy now based on that.”
Thomson says Midas fund managers Alan Borrows and Simon Edwards are star performers with low profiles and Jupiter special situations fund manager Cedric de Fonclare deserves recognition for keeping the fund’s top-quartile performance going after taking over from Leon Howard-Spink.
Perry believes that Standard Life equity income fund manager Karen Robertson is undoubtedly worthy of star manager status.
He says: “Her numbers are as impressive as Woodford and Nutt’s but she is not recognised as a star fund manager. She will be in the future but I think she should be now.”
But Perry believes this concentration is no bad thing and says it is up to advisers to be aware of all the best funds, not just the well known ones.
He says: “It is the duty of the IFA to look around for ways of adding value to their clients’ portfolios that not every other IFA would use.”