Why investment company fund manager tenure tends to the long term
Annabel Brody-Smith, communications director for the AIC, examines fund manager tenure among investment companies, noting that while a fifth of companies have changed managers in the past 18 months, 45% have had the same manager for over a decade and asks what keeps managers at companies for the long term?
The merry-go round of fund manager moves is something that the adviser press pay much attention to, and this is perhaps all the more so in the open-ended space, where fund manager moves can have such a huge impact on inflows and outflows.
That’s not to say that the investment company (investment trust) sector isn’t immune, either. I recall the shares on Edinburgh Investment Trust having something of a wobble on the news that Neil Woodford would be leaving. But no matter: the fund of course has been ably managed by Mark Barnett since Woodford’s departure, and at time of writing the discount is trading close to par, whilst the shares are up 18% over the year to 24 June against its sector average of 9%.
I don’t have any statistics on fund manager longevity in the open-ended space. But I have a hunch (and I’m willing to be corrected) that the closed-ended investment company sector has a greater proportion of managers who have stuck around for ten years plus. Co-incidentally, whilst the aforementioned Barnett has recently celebrated his first year managing Edinburgh Investment Trust, he has managed Perpetual Income and Growth for nearly two decades (19 years).
Barnett is by no means alone. In fact, nearly half (45%) of Association of Investment Company (AIC) members with a ten year history or longer have had the same fund manager at the helm for at least 10 years. Furthermore, 19% of member companies (35) have had the same manager for at least 15 years, and 11% of member companies (21) have had the same manager for at least 20 years.
But it is nonetheless interesting that the last year and a half has seen a large number of fund manager changes in the investment company sector. For example, it’s one year in July since Paul Niven took over the reins at Foreign & Colonial investment Trust, after a 17 year long stint by Jeremy Tigue. He spoke at our adviser seminar in Bristol recently, and it was interesting to see that buy-backs on the trust are at their lowest in a decade by a long shot, whilst the shares are up 21% over the year to 24 June compared to a sector average of 17%. It is good to see such large, liquid and high profile investment companies doing well.
July will also be Hee Wee-Li’s first anniversary managing Scottish Oriental Smaller Companies. Meanwhile, Dale Nicholls marked his first year managing Fidelity China Special Situations in April this year, whilst February ushered in the first year that Wouter Volckaert managed Henderson Global Trust.
In fact almost a fifth (18%) of investment companies have appointed a new fund manager over the last year and a half, either as a sole manager or as part of a team. Of course, there’s always going to be some fund manager movement – that’s life. Whilst the comings and goings we’ve seen over the short-term are also in part coincidence, with a number of managers retiring, it also reflects independent boards addressing long-term performance issues, a feature of the sector that is often underestimated but one which can be of huge benefit to shareholders.
On the flip side, I’d also wager that there’s a good reason why so many managers have stuck around managing the same fund for so long. It speaks volumes to me about how much managers can appreciate the closed-ended structure, which means they don’t have to worry about those aforementioned inflows and outflows, and don’t need to sell good stock to meet redemptions. In short, they can simply get on with running the portfolio how they want it.
Below is stable of the tenure of longest serving investment company managers
(companies over 10 years old)