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Star quality - Focus your attentions on a fund's process, not its manager

21/11/2014

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

Whenever a high-profile fund manager leaves their job, the chances are it will provoke a flurry of media comment on whether investors would do better to stick with the fund or follow the manager – or, as The Clash might put it, should you stay or should you go? So it has proved after an eventful few weeks of managerial comings and goings that included the exit of ‘Bond King’ Bill Gross from Pimco.

Admirably beating the Christmas rush with its headline, Should wise investors follow their star?, an article in the Financial Times made use of some numbers put together by Axa Wealth on the performance of what are traditionally known as ‘star’ fund managers and those charged with the supposedly unenviable task of following in their footsteps.

But is it really so unenviable? Not according to Axa Wealth, which assessed the performance of star managers over the 12 months prior to their leaving and then the first 12 months of their successor and found that in seven out of 10 UK-based examples, the supposedly lesser replacement outperformed the star, as measured against a peer-group benchmark.

We should note at this point that this sample is rather too small and the time periods rather too short for some tastes, including our own. Furthermore, the FT article also referenced a larger-scale study by Cass Business School and the University of Nicosia that found “a significant deterioration in performance in the three years after the top-performing manager left”.

We could offer our own thoughts on the various reasons why that might be but you have the link above and, anyway, we would much rather focus on the box at the end of the piece, entitled ‘The Midas touch: Fund managers worth their pay’. That is because two of the three managers it highlights are undisputed heavyweights of the value investing world – Benjamin Graham and Sir John Templeton.

According to the FT, the former’s Graham Newman Corporation fund returned 21% a year over the course of two decades while the latter’s Templeton Growth fund returned 14.5% a year between its launch in 1954 and when it was sold in 1992. We may have used the phrase ourselves recently in Pattern of behaviour but do not feel it is too presumptuous to suggest both Graham and Templeton would have attributed their success not to any star quality of their own but to adhering to a “durable, rigorous and repeatable investment process” that has proved itself over the course of 100 years.

Author

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials.  In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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The views and opinions displayed are those of Ian Kelly, Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans and Simon Adler, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated. They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.

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