A lot of things have gone wrong for Neil Woodford, the star fund manager who fell to earth, and they all began when he struck out on his own.
Lonely at the top
I’m sure he relished the freedom of being his own boss, but it’s backfired on him – and his loyal investors. Lacking the oversight that comes with working for a major fund groups such as Invesco Perpetual, he was free to stretch the rules and baffle his followers by loading up his fund with illiquid, unquoted companies. We all know how that ended.
Neil Woodford is not the only star manager to strike the wrong note after going it alone. AJ Bell has examined the track records of seven fund managers who went solo and found that six of them have dramatically underperformed their previous performances.
There’s one exception – fund manager Nick Train. He’s currently vying with fund management’s golden boy Terry Smith to replace Woodford as the UK’s favourite fund manager.
Out and down
The table below shows Woodford’s Invesco Income outperformed its benchmark index (delivered Alpha in the jargon) by 4.27% a year on average. But LF Woodford Equity Income underperformed by 7.24% a year, and LF Woodford Income Focus did even worse.
|Fund manager||Original fund||Annual alpha||New fund||Annual alpha|
|Neil Woodford||Invesco Income||4.27%||LF Woodford Equity Income||-7.24%|
|Neil Woodford||Invesco High Income||3.58%||LF Woodford Income Focus||-16.10%|
|Richard Pease||Henderson European Special Sits||4.28%||FP CRUX European Special Sits||1.72%|
|Richard Pease||Janus Henderson Euro Growth||3.32%||FP Crux European||-1.82%|
|Nick Train||M&G UK Select||-0.65%||LF Lindsell Train UK Equity||6.54%|
|Nick Train||M&G Global Select||-5.80%||Lindsell Train Global Equity||7.13%|
|Barry Norris||Neptune European Opps||8.91%||FP Argonaut European For||1.68%|
|Julie Dean||Schroder UK Opportunities||4.23%||TM Sanditon UK||-7.77%|
|Tim Russell||Schroder Core UK Equity||0.00%||TM Sanditon UK Select||-7.34%|
|Chris Rice||Schroder European Recovery||1.67%||TM Sanction European||-2.18%|
Renowned fund managers Julie Dean, Tim Russell and Chris Dean all left Schroders, where they had posted years of outperformance, to set up Sanditon Asset Management. Investors may wish they hadn’t bothered, as they have significantly underperformed since then. Renowned names Richard Pease, Barry Norris, Tim Russell and Chris Rice have also fallen from grace.
Train in vain
Nick Train bucks the trend although, interestingly, his performance at M&G was pretty underwhelming, whereas today he’s smashing his benchmark index. He has been managing money at Lindsell Train for far longer than he was at M&G, giving him more time to prove his worth. Clearly, though, he isn’t infallible. Nor is any fund manager.
Laura Suter, personal finance analyst at AJ Bell, said investors who follow a successful fund manager out of the door often regret doing so. “The figures show that once a fund manager leaves the comfort of a big fund house, they perform worse than before.”
Beware falling stars
She points out that fund managers tend to go it alone at the peak of their powers, knowing investors are more likely to follow them. All too often, it’s down from there. It’s another sign of the dangers in putting too much faith in the shooting stars of fund management.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.