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Emerging fund manager stars

Cherry Reynard examines how investors can spot rising stars
June 16, 2021

While few would dispute that wisdom can come with a few grey hairs, there is a compelling case for finding good fund managers earlier in their careers. There can be a sweet spot that comes somewhere after building up enough experience to hit their professional stride, but before too many assets cramp their style or they are handed too much responsibility. 

For the lucky investors that find fund managers at this moment, the returns can be exciting. They may be emerging from the shadow of another manager, handed their own fund for the first time. Or they may have thrown off the constraints of a larger organisation to start up on their own. Either way, they will be ambitious and keen to prove themselves. They are likely to be incentivised to build a strong track record and will have their own capital invested in the fund.

There are risks, however. They may not have, or it may need to be pieced together from their work on a number of funds. There may not be the comfort factor of other investors or the reassurance of a large brand name. Some fund selectors don’t get involved, insisting on a three year track record. However, others don't want to potentially miss out on a fund manager’s best years. The question is how to identify these emerging stars.

Looking at the protegees of experienced managers can deliver some good ideas. Gavin Haynes, investment consultant at Fairview Investing, gives the example of Charlotte Yonge. She worked alongside Sebastian Lyon at Troy Asset Management on the group’s flagship £5bn Trojan Fund and was handed management of Trojan Ethical Fund (GB00BKTW4R13) at its launch in 2019. Haynes says: “She had responsibility for multi-asset coverage, and the analysis of global companies and their selection for Troy’s portfolios.” She has learnt from the best and now carries that into a new fund.

It is a similar story for George Cooke at Montanaro, backed by Paul Green, a fund manager on the BMO GAM multi-manager people team. Cooke now runs LF Montanaro European Income Fund (GB00BJRCFY03), Montanaro European Smaller Companies Fund (IE0001195316) and Montanaro European Smaller Companies Trust (MTE), using the same investment approach that has worked well on the group’s UK funds.

Green first invested in George’s European Income Fund in late 2019, having got to know the team through its UK offering. He adds: “George is supported by the same team, and applies the same philosophy and rigorous stock selection process to his funds. For the European Income Fund, he targets quality European small and mid cap companies offering an attractive dividend yield or the potential for above average dividend growth.”

Sometimes, a little detective work on a fund manager’s work at previous firms can help guide investors to a rising star. Green has also backed Seb Jory at Tellworth Investments. Jory joined Tellworth in 2018 from Liberum where he was head of strategy stock selection. During his time at Liberum, he helped build proprietary models to improve the forecasting of UK economic data in the wake of the UK referendum vote - the “UK Thermostat”. He uses the models today in his role as co-portfolio manager on TM Tellworth UK Select Fund (GB00BTC2N411).

Green says: “Along with these economic signals, he also makes use of data driven techniques to gain insights at the micro level which, when combined with fundamental stock selection analysis, are used for both long and short stock idea generation… The fund is off to a great start since Tellworth began managing it, generating a return of 20 per cent between December 2019 and the end April 2021, with low volatility.”

Jory and his co-manager, John Warren, are backed by an experienced team of UK investors, including Paul Marriage, formerly of Cazenove and Schroders.  

There are also areas where longevity doesn’t necessarily confer an advantage and may even be a hindrance. Sustainable investing is a relatively new phenomenon and has seen rapid change in a short period of time. A flexible, youthful perspective may be an active advantage. With this in mind, Martin Ward, head of fund research at Punter Southall Wealth, picks Graeme Baker, a manager on Ninety One Global Environment Fund (GB00BKT89K74).

He says: “The strategy is thematically driven by issues surrounding global climate change and a “decarbonising world”. We feel this is a specialist area of the market, and have always been highly impressed with the insight and knowledge Graeme has around the subject of climate change and how it needs to be tackled. Graeme doesn’t just run the fund because it’s his job - he genuinely cares about this issue.

“Graeme and his co-manager, Deirdre Cooper, have developed an excellent proprietary screen and investment process to genuinely filter a relatively large universe down to those best-in-class companies that are making a real change.”

The same could be said for Josh Gruss and his team on Round Hill Music Royalty Fund (RHM), picked by Grethe Schepers, director of research, Fidelity Solutions & Multi Asset. The fund first listed on the London Stock Exchange in late 2020 and acquires music rights, including publishing and recording rights.

He says: “Round Hill’s portfolio focuses most on publishing rights, reflecting the intellectual property of the underlying composition, such as lyrics or melody. While this is a newly floated strategy and is still establishing its track record, we believe it can offer an attractive, long duration return stream, underpinned by scarcity of assets and protected by copyright law. Round Hill offers good levels of transparency, which is critical for a strategy like this one. The strong team supporting the strategy includes a diverse range of skillsets, marrying investment management with music industry experience.”

Equally, there are parts of the market where the flexible thinking of a younger manager will be a real advantage. Today, bond markets can be a treacherous place to invest, with yields low and inflation looming. The loose monetary policy in place since the Global Financial Crisis has changed the landscape for bond investing and fixed income managers have had to adjust their thinking.

Ward picks Nicolas Trindade on AXA Global Short Duration Bond Fund (GB00BDFZQV30). He says: “Nic comes across as a calm, level-headed and thoughtful person, but also has conviction in his views, which we feel is vital in today’s turbulent market landscape. Being a ‘safe pair of hands’ may seem boring and cliched, but this is exactly why we invest with Nic, and we are comfortable that we shouldn’t get any nasty surprises with the Global Short Duration Bond fund.

“The philosophy and process Nic adheres to is diligently applied and, importantly from our perspective, Nic is always able to explain his views and process clearly. The strategy fulfils a vital role within our portfolios, operating as one of our lower risk funds in the space.”

Experience is undoubtedly important in fund management. Having seen previous cycles can help a fund manager keep their head during difficult times. However, it is important to recognise that markets evolve and new strategies emerge. A rising star may be just the right person to harness those trends.

 

Fund performance - total returns (%)
Fund/benchmark6m1yr3yr
Troy Trojan Ethical3.887.83n/a
LF Montanaro European Income10.2928.2625.3
TM Tellworth UK Select7.9812.0722.08
Ninety One Global Environment 8.1744.83n/a
Round Hill Music Royalty Fund-1.88n/an/a
AXA Global Short Duration Bond0.654.167.49
FTSE All Share index12.3924.756.17
IA UK All Companies sector average15.6328.7510.53
Source: FE to 11/06/21. Share price total return given for Round Hill.