There’s no doubt the shock departure of a star fund manager or well-followed stock picker is a red flag, but there are various reasons why successful portfolio managers choose to leave their investment management firm and therefore their funds.

And, as with most aspects of investing, there are no hard and fast rules about what investors should do when their fund manager ups sticks. Much depends on the nature of the exit: is it retirement after a long and successful stint managing a fund or investment trust? Is the manager seeking a fresh challenge and moving on to pastures new? Has he or she been poached by a competitor, or resigned to set up their own fund management boutique?

When a fund manager who has forged a stellar track record exits stage left, it is tempting to immediately sell your fund units or investment trust shares. However, it is important not to panic and to take your time and assess the situation.

ALL CHANGE 

Management change is a hot topic in the collectives industry, with numerous top stock pickers across the fund and investment trust sectors retiring, moving to rival asset managers or leaving their current employer to strike out on their own.

In the funds patch, highly-rated contrarian value manager Ben Whitmore, who has long-steered Jupiter UK Special Situations (B4KL9F8), is leaving Jupiter Asset Management in July to set up ‘Brickwood’, his own value boutique firm.

Given Jupiter UK Special Sits is ranked first quartile over one, three and five years, having returned a cumulative 49.1% over the latter period versus 28.4% for the IA UK All Companies sector, the news triggered outflows and holders face a conundrum – stick with the fund or follow Whitmore out the door.

His surprise departure prompted Alliance Trust (ATST) to replace Jupiter with global value manager ARGA to manage part of its global equity portfolio. As Craig Baker, chief investment officer at Alliance Trust’s investment manager Willis Towers Watson, explained: ‘While we continue to have high regard for Ben’s skill as an investor, this change of circumstances introduces potential risks which will take time to fully assess. We have therefore decided to replace Ben’s allocation with one run by another stock picker with a similar value-investing philosophy.’

Reassuringly for those sticking with Jupiter UK Special Situations, the fund will be taken over by Alex Savvides, manager of the successful JOHCM UK Dynamic (B4T7HR5) fund; the latter’s new team of Vishal Bhatia, Tom Matthews and Mark Costar are maintaining the robust, disciplined investment process Savvides put in place.

Elsewhere, prominent fixed income manager Mike Riddell is leaving Allianz Global Investors to assume responsibility as lead manager for Fidelity’s strategic and total return bond strategies in what is a appreciable blow to investors in Allianz Strategic Bond (BJ1DZT4), while investors in Royal London Global Equity Select (BF93W97) fund also have a decision to make following the resignation of star manager Peter Rutter from RLAM (Royal London Asset Management), alongside several of the firm’s global equities team, in order to set up to set up his own shop in partnership with Pinnacle Asset Management. If one manager leaves, the asset management firm can soothe investor sentiment by emphasising a fund’s team-based approach, but in this case a whole team is leaving, which means the entire process could change.

In the investment trust sector, a number of new managers have taken up the reins following the retirement of incumbents. With Bruce Stout bowing out as lead manager in June 2024, Martin Connaghan and Samantha Fitzpatrick are now co-managers of Murray International (MYI).

Also retiring in June is Peter Ewins, with Nish Patel now the new lead manager of The Global Smaller Companies Trust (GSCT). ‘As with Murray International, this reflects the promotion of a manager who has been familiar with the trust and portfolio over many years,’ says Stifel. ‘Mr. Patel has 16 years of experience in the investment industry with the small cap team at Columbia Threadneedle. He is also able to draw on the experience of eight other portfolio managers, in addition to a large team of research analysts.’

Also retiring this year is Witan’s (WTAN) long-serving chief executive Andrew Bell, and here the board has used it as an opportunity to review the global multi-manager trust’s management arrangements.

WHY TRUSTS ARE BETTER PLACED

Ryan Lightfoot-Aminoff, investment trust analyst at Kepler Partners, points out that as closed-ended funds, investment trusts are better placed to navigate manager departures than open-ended structures.

‘In the case of an open-ended fund, if management changes trigger investor nervousness and redemptions then the new manager could find it challenging to follow a consistent investment strategy whilst contending with a wave of outflows. But investment trusts have a fixed pool of capital, meaning managers can continue to focus on making investments and pursuing their intended strategy without disruption.’

Since investment trust shares are subject to the forces of demand and supply, manager departures can cause sell-offs which open up wide discounts investors can capitalise on.

‘Sometimes we actually play these situations,’ says Greenwood, manager of MIGO, a specialist in exploiting the pricing of other closed-end funds. One example he cites is Philip Rodrigs’ 2018 dismissal from River & Mercantile, ‘slightly under a cloud’. Small cap investor Rodrigs had forged a strong reputation for his stewardship of River & Mercantile UK Micro Cap (RMMC), so his departure rattled investors.

‘A very young replacement (George Ensor) was announced at short notice and the market didn’t like it. The thing with investment trusts is the market reacts very quickly, completely different from open-ended funds, and the shares took a big hit,’ recalls Greenwood, who was able to chat to a few people in the know who were ‘very bullish’ on Ensor’s abilities. ‘We took the view that this probably wouldn’t pan out too badly and bought the stock, having not owned River & Mercantile UK Micro Cap before. That proved to be exactly the right thing to do.’

STEPS TO TAKE WHEN YOUR MANAGER UPS STICKS

When a successful manager leaves, you should think carefully about how the fund was managed. Was it managed using a team approach, in which case the departure might not have a major impact on the overall strategy? Or did the manager run the fund on their own, which is what you often get with so-called ‘star managers’, meaning their departure is a more serious threat.

If the portfolio in question will continue to be managed in the same way, it may be suitable to stay with the fund. However, if you feel the investment approach will change it may be worth considering selling your units or shares.

‘If the fund manager of a long-term holding you’ve got is about to leave, it does cause you to re-evaluate,’ says Peter Hewitt, manager of CT Global Managed Portfolio Trust (CMPG), which invests in other global investment trusts. ‘Most of the time it’s right not to have a knee-jerk reaction but sometimes you do, perhaps you don’t like the look of who’s coming through.’

Hewitt says it is mainly a positive that many fund management houses emphasise team-based approaches, although it can sometimes be a negative ‘because you just wonder who actually takes the decisions’.

Nick Greenwood, manager of MIGO Opportunities Trust (MIGO), which also invests in other trusts, says ‘every individual situation is so different. You’ve got situations like star managers and that doesn’t seem to work out too well if you follow the star manager to another firm. A lot of people followed Neil Woodford and that didn’t work out too well.’

William Heathcoat Amory, managing partner at Kepler Partners, says it is important to consider the circumstances under which a manager is leaving, for example ‘whether there is a contentious issue at play or whether they feel it is simply the right time to move on’.

In the case of Murray International, Heathcoat Amory believes Stout’s retirement should cause minimal disruption. ‘He has managed the trust alongside Martin Connaghan and Samantha Fitzpatrick since 2004, and the trio have a longstanding, strong team dynamic and collaborative management style. The existing level of process and experience built into the management team should ensure continuity and give investors a good degree of comfort when the lead manager departs.’

Hewitt, who holds Murray International in CT Global Managed Portfolio’s income portfolio, stresses that Connaghan and Fitzpatrick have been in meetings ‘for years now, so I don’t think there’s going to be a significant change in overall approach. I’m not selling, absolutely not’.

Also weighing in is Peter Walls, who manages Unicorn Mastertrust Fund (3121801), which invests in investment trusts. When it comes to retirement situations, Walls generally recommends a ‘hold’ approach, as long as the succession planning has been well flagged to investors in advance.

‘If someone has done a pretty good job for at least a decade or two, you would have to assume that both the manager and the management group would be eager to ensure that the good times continue to roll,’ he explains. ‘Any successor will be unlikely to bring about radical change so investors can probably reflect at their leisure before incurring the costs of deciding to sell.’

But things get trickier when managers move to a competitor or set up on their own. ‘For manager moves I have not seen any evidence that adequately answers the question of hold or sell,’ says Walls. ‘If I had to roll the dice, I’d say follow a manager that you really believe in, but don’t get sucked into hubris and make sure the manager sticks to their fundamental process going forward.’

WHAT IF I STICK WITH THE FUND?

In this situation you’ll need to evaluate the new fund manager, be it an internal or external hire. Ask yourself, has the investment management firm drafted in a seasoned manager with a strong reputation in the industry and experience with a similar strategy, or has the firm decided to give the opportunity to a young internal hire?

Many asset management firms like to promote analysts to fund managers as the next part of their career development. Yet while they will be familiar with the investment philosophy of the firm, managing money for investors requires a different skill set to pure equity analysis.

You should also weigh up whether the new fund manager’s style fits snugly with the vehicle’s existing investment strategy or not. If it doesn’t, you might see changes in the investment approach in the months and years ahead, which may result in the fund deviating from your objectives, which means it might be better to sell up and move on.

AVOID STYLE DRIFT

Darius McDermott, managing director at FundCalibre, explains to Shares that when a manager leaves, it is not always a certain sell, but, overwhelmingly, he tends to see this as a negative event.

‘If the intellectual property that underlies a process goes with the manager – or he/she leaves with their analyst team – it is an instant sell. Sometimes a manager will retire and be replaced by a capable incoming manager – in this case we will maintain a watching brief,’ says McDermott.

‘What we try to avoid is “style drift” from the fund’s stated objective - losing a manager central to the process or a team is normally bad news. Sometimes, the manager may leave to set up his or her own boutique or be poached by another manager. If they have the appropriate resources and risk oversight, we will consider moving our assets.’

McDermott continues: ‘For example, Jonathan Golan delivered spectacular performance in his fund management career, firstly on the Schroder Sterling Corporate Bond fund, between February 2017 and March 2020. When he left Schroders, he joined Man GLG with experienced analysts and was given the resources to build a dynamic team to undertake the intensive research required by his range of strategies. We have a high degree of confidence that he and his team can continue to outperform. We currently have an Elite Rating on Man GLG Sterling Corporate Bond (BNLYQX6) and an Elite Radar rating on Man GLG Dynamic Income (BR89P80). Jonathan remains one of the most exciting managers in the bond space.’ 

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