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Planetary cycles

Financial advisers must have a soft spot for fund management groups with planetary links. Jupiter led the way in the 1990s and New Star rocketed to the top of the charts soon after the start of the new millennium. Now it seems that Neptune is taking its turn.

Jupiter continues to court popularity by consistently delivering the goods and 57 per cent of its 26 funds have achieved first-quartile performance over the past three years. Yet as the Isa season gets under way, New Star is having its toughest time yet. Not only has its share price sunk from its lofty highs but its fund performance has come under intense scrutiny.

Only a few years ago, New Star was advertising that six of its seven funds were top-quartile performers. More recently, James Ridgewell was being trumpeted in the press as one of its up-and-coming managers. According to Morningstar, however, in the three years to January 7, 2008, fewer than 30 per cent of its funds were top-quartile performers. Admittedly, its funds include some poor performers it inherited along the way but I am sure it is some way from where it would like to be. Meanwhile, Ridgewell’s underperforming UK special sits fund is set to be merged with UK alpha.

Neptune has been catching up quietly. It had the top two funds out of more than 1,600 in 2006 and sales have doubled every year since 2002. Assets now total £2.2bn, having grown from £946m only 12 months earlier. Eighty per cent of its sales are retail.

The question on everyone’s lips is whether Neptune can sustain its performance. It certainly has not done badly in defying its doubters so far. Of its 12 funds, 11 have turned in top-quartile performance over three years. It has the number-one fund in no fewer than six Investment Management Association sectors since January 2005. They are North America, cautious managed, Europe ex-UK, active managed, global growth and specialist.

Unlike many of its competitors, Neptune claims that it does not embrace the cult of individual star managers although you would be forgiven for thinking that it does, given the profile of Robin Geffen.

Geffen does not appear to be shy about being featured in the press to advertise his company’s wares. Indeed, I think he rather enjoys retelling tales of visiting Russia and popping into local shops to discover what they were selling. Seeing 17 different types of imported beer a year or two back told him it was enjoying a consumer boom even though the oil sector was having a detrimental impact on Russian stocks at the time.

He insists that all his managers talk to each other and share ideas and they are not in competition with each other. All his managers are incentivised and bonuses are based on three factors – performance, profitability and, unusually, teamwork.

Neptune also ignores the age-old strategy of analysing shares on a country basis. Instead, each manager covers a global sector. For example, one manager covers global financials, another industrials and so on. Geffen reckons global companies tend to dominate in the area where they operate to the extent where there are usually no more than a handful of stocks worth investing in.

It is a strategy that seems to be working, as does its aversion to small caps. Blue chips are dominant in the emerging market portfolios to avoid any liquidity issues.

Neptune has won many plaudits and is picking up business from the multi-manager players but the pressure for Geffen starts now. It is well documented that smaller funds often deliver superior performance and problems can arise when funds get bigger although Geffen claims he will not be averse to soft-closing.

Much of his performance has come from his emerging market exposure and it has not all been plain sailing. Neptune’s UK offerings struggled last year while its Japan fund continues to falter year after year.

In a recent article on Geffen in the Sunday Telegraph, he was photographed sitting cross-legged in his office. The picture was placed above an advert promoting New Star’s commercial property fund, as if Geffen was perched on top of it. The image seems appropriate today but it should remind Neptune that its biggest test is not so much getting to the top as staying there.

Paul Farrow is money editor at the Sunday TelegraphMoney Marketing

50 Poland Street, London W1F 7AX

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