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When you wish upon a Star

Have dreams come true for investors who put their money in Duffield’s funds?

When John Duffield launched New Star in summer 2001, he promised “to build a company in which the finest fund managers could focus on making investors richer”. Four-and-a-half years on – a little later than planned – New Star is about to float on the stockmarket.

It has been an entertaining journey. There was no doubt that Duffield would court con- troversy along the way and he has not disappointed. He gets great pleasure from putting his rivals’ backs up and is never short of a soundbite or two.

Barely two years after its debut, Duffield launched a scathing attack on some of Britain’s biggest fund managers for failing hundreds of thousands of investors. He boasted that six out of seven New Star funds were top- quartile performers.

He described the performance of funds offered by the likes of Gartmore, Legal & Gen- eral, M&G, Scottish Widows and Standard Life as “bloody awful” and “diabolical”. If he intended to wind up people, it worked a treat, sparking an angry response from the mild-mannered Alan Burton, former managing director of Standard Life’s unit trust business.

But what of that boast now? Is New Star delivering on its promise to make investors richer? Its first two funds – UK growth and European growth – attracted 250m in just three weeks. UK growth was the bigger seller, raising more than 140m, but it had a disastrous first year and quickly slipped to the fourth quartile. Duffield swiftly replaced the manager, Alan Miller, with Stephen Whittaker, the former Invesco Perpetual star, in July 2002.

Whittaker’s appointment has started to pay dividends for investors who stuck with the fund. The fund produced top-quartile performance in 2003 and 2004 although it has now slipped back down the rankings. Those who invested at launch have seen a return of around 7 per cent – not exactly rich pickings.

Richard Pease’s European growth fund has had no such problems. The past 12 months aside, in which it produced second-quartile performance, it has been in the top quartile over just about every timeframe. An outlay of 1,000 at launch would be worth almost 1,500 today.

New Star’s flexible culture meant Duffield had little problem wooing star fund managers. Toby Thompson, James Geldhill, Tim Steer and Patrick Evershed all joined in the early years and have three-year track records.

Surprisingly, Thompson’s higher-income fund has underperformed. Similarly, high-yield bond fund manager Gledhill, who won plenty of plaudits at M&G, has hardly set pulses racing.

Evershed’s select opportunities fund hit the heights consistently until the past 12 months, since when it has slipped to 225th out of 291 funds in the UK all-companies rankings – not that it will cause too much concern for investors who put faith in him at the beginning, as they have doubled their money.

Steer, meanwhile, has consistently outperformed the average and his alpha fund is up by a decent 79 per cent over the past three years.

And what of Theo Zemek, the former high-yield bond queen from M&G? She took charge of the monthly distribution fund when it launched in 2003 but it has underperformed over the past 12 months and delivered second-quartile performance over two years.

New Star is no longer an investment boutique. It has 13bn under management, having picked up business from Aberdeen, Edinburgh and Exeter. It has 33 funds with a three-year track record and 20 of those have turned in top-quartile numbers while a third (many of which are inherited) have underperformed the average. Of 36 funds with a two-year track record, 27 are better than average.

I expect most of its investors are happy with their lot so far. Come November 11, when it floats, I suspect a fair few of its employees will be more than happy with theirs.

Money Marketing50 Poland Street, London W1F 7AX

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