High turnover in fund managers dents investor confidence

THE cult of the star fund manager was a noughties phenomenon, but investors still attach a value to the best managers that could cost some firms dearly.

While fund management groups are very keen to hang on to the best talent, those unable to do so risk losing the confidence of their investors. And when firms lose the managers running their emerging markets funds in particular, investors can be excused for getting antsy.

Few investors dispute the view that emerging markets will be the key investment growth driver over the coming years. Martin Currie is among the groups strengthening their emerging markets expertise. It is doing so in anticipation of a greater focus on the developing world, luring half-a-dozen emerging markets managers from Scottish Widows Investment Partnership (Swip).

Unfortunately for Swip, that left it bereft of emerging markets specialists and forced it to combine its global emerging markets and global developed markets teams under a new international equities division.

The firm lost a large chunk of its fixed income team to Alliance Trust last August, while UK equities head Robert Waugh went to Royal Bank of Scotland and chief equities investment officer Graham Wood left for Edinburgh Partners.

In the same April week in which it lost the first two members of its seven-strong emerging markets team to Martin Currie, Ian Vose, head of developed markets and one of Swip's most experienced equity managers, departed for Investec.

The decimation of the group's emerging markets function comes when most firms are building their emerging markets capabilities in anticipation of it being a core investment focus in the coming years, and at a time when investors are increasing their non-UK exposure.

The concerns are exacerbated by erratic performance elsewhere, for, while some Swip funds continue to produce strong returns, a number are consistently underperforming. The group regularly features in the "dog fund" reports published by broker Bestinvest, which single out the most consistently underperforming funds. Between them Scottish Widows and Swip had almost 1.7 billion of assets in the latest dog funds' report, over a quarter of the combined group's funds.

Perhaps unsurprisingly, Swip funds also appear regularly in Trustnet's table of funds shedding the most money. And unless it can either do a better job of keeping hold of the best managers or attract good new managers, it's hard to see that changing.

With so many fund managers consistently failing to produce the goods, it seems the decent ones can still name their price. The Swip defections are also noteworthy for being to smaller rivals, even if Alliance Trust and Martin Currie are hardly minnows.

This follows the pattern of the early and mid-noughties, as fund managers left the biggest fund groups in their droves to either establish or join boutique management firms, where they could enjoy greater responsibility and investment flexibility.

But where does this leave investors – do they follow the manager or leave their money where it is? Or do they allow their investment choices to be dictated by manager stability?

Some of the biggest and best funds are run by managers that have either been with one employer for their entire careers, or at least a significant duration. Neil Woodford at Invesco Perpetual and Harry Nimmo at Standard Life spring to mind, but the highest profile example is Anthony Bolton at Fidelity.

However, the hype surrounding Bolton's new venture – a China-focused investment trust – underlines the extent to which many investors will put their money where the manager is, sometimes to the cost of other considerations. The trust attracted 460 million at launch, short of the target but still the best investment trust launch for 16 years, suggesting Bolton's name attracted people to a high-risk trust for the wrong reasons.

There's no right or wrong answer for investors wondering whether to follow the manager – but high turnover within fund management firms can only be damaging to the confidence of investors and advisers.