The Big Theme
Investors picking where to entrust their money are seeking a safe pair of hands, with fund managers who are among the best in the business and able to deliver stellar long-term returns.
In December 2011 we highlighted a number of rising stars, including Stuart Rhodes of M&G, Alex Wright of Fidelity, Paul Marriage of Cazenove, Leonard Charlton of Melchior, and Jason Pidcock of Newton. But while most continue to climb steadily through the ranks, some have fallen by the wayside, demonstrating the perils of chasing star fund managers in pursuit of profit.
One whose star sank was Leonard Charlton, manager of the Melchior European Absolute Return Fund, which fell by 5.18 per cent over 2012, compared with a rise of 12.3 per cent for the FTSE All-Share Index.
"He had a difficult year as his fund fell back as his negative stance on European equities was detrimental when markets on the continent rallied," says Gavin Haynes, investment director at Whitechurch Securities. "However, on the whole the managers mentioned have continued to attract monies into their funds, and provided positive returns during 2012, while outperforming in their sectors."
These managers have reason to be proud of their performance, as the past year presented a challenging environment for rising stars, with markets driven by expectations of policy events.
"These included action by central banks, the US elections and leadership change in China - and latterly the fiscal cliff," says Jason Hollands from Bestinvest. "A false call on the risk on/risk off trade could turn a manager from hero to zero overnight, so it wasn't a climate in which some could play to their strengths."
The last year saw a few of the past managers with the Midas touch show signs of a comeback. "It was good year for Andy Brough, for example, who manages the Schroders UK Mid 250 Fund, after a prolonged period in the wilderness - and also Sanjeev Shah of Fidelity Special Situations," says Mr Hollands. This demonstrates that even those previously considered stars have periods of underperformance.
Here is this year's selection, with several names managing both unit and investment trusts.
ALEX WRIGHT, FIDELITY UK SMALLER COMPANIES FUND (Age 32)
Fidelity's Alex Wright continues to ride high after delivering a hefty return of nearly 42 per cent during 2012 on his £157m small-cap fund, making it the best performer in the sector.
The fund, originally called the Fidelity UK Opportunities Fund, focused on retailers such as Moss Bros and JD Sports to propel it to the top of the pack.
Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said: "Wright takes a small position in a company before visiting the operation and meeting the management, and considers key competitors to a business. Overall, through the research process, he aims to identify companies going through change - such as those going through a difficult period, but where factors are being overlooked by the market."
Wright joined Fidelity from from university in 2001 working as an analyst before moving into portfolio management in 2008.
There is no policy to restrict investment to particular economic sectors. The fund may also invest in other transferable securities, money market instruments, cash and deposits. It may also use derivatives and forward transactions.
Alex also took over management of the Fidelity Special Values Investment Trust in September, which is trading at a 10 per cent discount. "This is one to watch," says Charles Cade, investment trust analyst at stockbroker Numis. "Anthony Bolton originally ran this fund, and it has a far bigger mandate with a size of £300m than the smaller companies fund."
Sector: IMA UK Smaller Companies
Performance rank in sector in 2012: 1st out of 56 funds
Fund's total expense ratio (TER): 1.77 per cent
Top long positions (as of November 30 2012)
|Cable & Wireless Comm||3.16|
STUART RHODES, M&G GLOBAL DIVIDEND FUND (Age 32)
Stuart Rhodes' M&G Global Dividend fund beat the IMA global sector. "It continues to be one of my favourite choices for a globally diversified equity income fund," says Mr Haynes.
Mr Hollands adds: "Over his identifiable career track, Rhodes has delivered consistent outperformance, beating the market in 60 per cent of individual months and scoring 95.8 per cent on Bestinvest's Manager Record Index - a statistical measure as to whether value is being added through decision-making."
Mr Rhodes graduated from Bath University in 2003, and joined M&G as an equity analyst in 2004, working on the global team. In July 2008, he was appointed manager of the M&G Global Dividend Fund when it was launched. Unlike traditional income funds, the fund focuses on dividend growth rather than dividend yield, and it has grown to a hefty size of £4.1bn.
As a global fund, the manager can focus on dividend growth around the world. The fund may also invest in other assets including collective investment schemes, other transferable securities, cash and near cash, deposits, warrants, money market instruments and derivatives.
Mr Rhodes looks at three types of companies to find the right balance for the fund. These include investing between 50 and 60 per cent in quality companies focused on dividends and reliable growth; 20 to 30 per cent in companies more susceptible to the economic turmoil, but which are backed by a strong portfolio of assets; and, finally, rapidly growing companies - such as those with exposure to emerging market growth.
Sector: IMA Global
Performance rank in sector: 102nd out of 232 funds
TER: 1.68 per cent
Top long positions (as at 30 November)
|Johnson & Johnson||3.2|
PAUL MARRIAGE, CAZENOVE UK SMALLER COMPANIES (Age 40s)
Among the most impressive performance last year came from Paul Marriage for the Cazenove UK Smaller Companies and Absolute UK Dynamic funds he manages. The small-cap fund, which he is best known for, posted an impressive return of 37.4 per cent over 2012.
Mr Marriage may not be the freshest face on the block, with 14 years of investment experience, but his star continues to rise. He has seen continued top performance from a diverse range of stocks, and adopts an entirely bottom-up process, investing in small-cap stocks based on growth potential and value.
Tim Cockerill, from investment manager Rowan Dartington, says: "He is a very precise fund manager in that he knows what he likes and dislikes and has his own strict guidelines when it comes to buying and selling.
"Selling is much harder than buying, and being very disciplined about this is a great benefit. His funds have done well and I expect his style to continue to be very effective going forward."
He has also made his mark managing an absolute return fund that, unlike many of its peers, actually delivers positive returns while minimising volatility. But this is soft closed to new investment.
Mr Marriage graduated from University College, Oxford, with a degree in history. After graduating he joined Willis Group as a reinsurance broker for energy companies. He then moved into investment management with Creditanstalt as an eastern European equity analyst before joining Insight Investment in 1998, where he was promoted to become head of Insight's UK Small Cap investments.
He joined Cazenove Capital in 2005.
Sector: IMA Smaller Companies
Position in sector in 2012: 3rd out of 56 funds.
TER: 1.6 per cent
Top long positions (as at 30 November 2012)
Low & Bonar
Smart Metering Systems
|British Polythene Industries||2.39|
THOMAS MOORE, STANDARD LIFE UK EQUITY INCOME UNCONSTRAINED FUND (Age 37)
Thomas Moore is a new name on the future star manager list, with a short but impressive track record. He has covered international equities, emerging markets and the UK in his career, which began at Schroders as a graduate in 1998, where he worked as an analyst for the Emerging Markets team, before moving to Standard Life in 2002.
In 2006 he moved to the UK equities team, taking over the Income Unconstrained fund in 2009, and pushing it to top of the sector that year.
He is credited with turning it around after a couple of years of poor performance. Mr Cockerill says: "It is a higher-risk income fund which is good in that it provides exposure to stocks that many other UK funds won't have, but it is likely to be more volatile.
"However, returns have been very good. As part of the Standard Life UK equity team he has a lot of other managers and analysts supporting him, which is important with this type of fund. So he is definitely a manager to watch if you want income with the potential for significant capital growth, but not if you would like to avoid sharp price movements."
Mr Moore has also been managing the Standard Life Equity Income investment trust since November 2011, which is trading on a 2 per cent discount. This rose by 19 per cent over 2012, says Mr Cade at Numis, beating peers and making it an appealing option for investors.
Sector: IMA UK Equity Income
Position in sector: 9th out of 97 funds
Top long positions (as at 30 November 2012)
|Legal & General||2.8|
|F&C Asset Management||2.5|
|Jardine Lloyd Thompson||2.4|
JASON PIDCOCK, NEWTON ASIAN INCOME (Age 40s)
Jason Pidcock of Newton Asian Income returned 21.46 per cent over the past year.
He remains a "relative newbie compared with his peers, and continues to impress", says Mr Lowcock. The fund is one of a growing number of investment funds extracting a mix of capital growth and dividend income for investors from the expanding economies of the Asia Pacific region, excluding Japan.
The fund is now around £3bn in size, which shows how highly-regarded Mr Pidcock has become within the sector.
Mr Cockerill adds: "Pidcock has done a very good job with this fund, and as investors seek income from further afield demand for this type of fund will remain strong.
"Newton has always been keen to point out their team work and themes which lie behind all of their funds, and while this is certainly true it is the manager who makes the decisions - and Pidcock certainly stands out and the future looks bright."
The fund focuses on strong companies in economies that are expanding at pace have the potential to deliver growing earnings, part of which can then be used to pay rising dividends year on year.
For income seekers, who typically concentrate on the UK stock market, this fund provides a good alternative.
Sector: IMA Asia Pacific Ex Japan
Position in sector: 9th out of 81 funds.
Top long positions (as at 30 November 2012)
|Taiwan Semiconductor Manufacturing||4.4|
|Australia & New Zealand Bank||3.9|
|Chinese Mobile (Hong Kong)||3.7|
|Sands China Ltd||3.7|
|Link Real Estate Inv Trust||
|Hutchinson Port Holdings Trust||
|Advanced Info Service||
PERFORMANCE OF RISING STARS
|Fidelity UK Smaller Companies||41.63||-7.79||40.07||93.72|
|Newton Asian Income||21.46||-1.45||31.98||49.81|
|M&G Global Dividend||11.06||-2.37||19.85||28.02|
|Standard Life UK Eq Inc Unconstrained||23.56||-9.85||23.53||42.53|
|Cazenove UK Smaller Companies||37.35||1.71||33.79||72.54|
|FTSE AllSh TR GBP||12.30||-3.46||14.51||30.12|
|MSCI World GR USD||11.42||-4.31||15.87||16.45|
Notes: *Data as at 2 January 2013. Shows percentage change performance of £100 initial lump sum, on bid price-to-bid price basis, basic rate tax in sterling.
INVESTMENT TRUST YOUNGSTERS
Alongside those mentioned above, other promising young investment trust managers to watch, according to the Association of Investment Companies, include:
Catherine Raw, co-manager of BlackRock World Mining (BRWM), working along with Evy Hambro.
Ms Raw earned a MA degree in Natural Sciences from Downing College, Cambridge University in 2002, and an MSc degree in Mineral Project Appraisal from Imperial College, London in 2003. Her service with BlackRock dates back to 2003, including her years with Merrill Lynch Investment Managers (MLIM), which merged with BlackRock in 2006. At MLIM, she worked on both the gold and mining funds. Prior to joining MLIM, she worked at Anglo American Plc. in London and Johannesburg, and at Boliden's Laisvall mine in Sweden as a geological field assistant underground.
BlackRock World Mining aims to maximise total returns to shareholders through a world-wide portfolio of mining & metal securities. It is an IC Top 100 fund.
John MacDougall, manager of Baillie Gifford Shin Nippon (BGS).
This trust aims to pursue long-term capital growth principally through investment in small Japanese companies. Mr MacDougall graduated with a BA in Ancient & Modern History from Oxford University in 2000. He joined Baillie Gifford the same year and is an Investment Manager in the Global Discovery Team. He has been a CFA charterholder since 2003.
Baillie Gifford Shin Nippon
Sector: AIC Japanese Smaller Companies
Ongoing charge: 1.51%
Top long positions (as at 31 December 2012)
|Cocokara Fine Holdings||3|
|Annual returns %||2008||2009||2010||2011||2012|
|MSCI Japan Small Cap GR USD||9.34||-6.3||23.89||-3.01||-0.39|
Tom Slater, deputy manager on Scottish Mortgage Investment Trust (SMT), reporting to James Anderson.
Scottish Mortgage is a high conviction global portfolio targeted at growth stocks. It is one of the lowest cost global growth investment trusts and is an IC Top 100 fund.
Mr Slater graduated from the University of Edinburgh with a BSc in Computer Science with Mathematics in 2000. He became a CFA charterholder in 2003. Tom joined Baillie Gifford in 2000 and is an Investment Manager in the UK Investment Team.
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