BLOG: Don’t panic sell when ‘star’ leaves

Written by:
Mike Kellard, chief executive officer, AXA Wealth comments on research into the performance of funds after the departure of ‘star fund managers'.

“Our research into the performance of ‘star fund managers’ and their successors indicates that pressing the panic button when a ‘star’ leaves and exiting the fund is not necessarily the best policy. We’re not trying to argue that, for instance, Mark Barnett is a better or worse manager than Neil Woodford – or indeed imply that a fund manager’s performance should be judged on a one year time horizon, which is clearly not the case – but our data does highlight the perils of making a knee-jerk reaction based purely on the name or reputation of a manager.

“Our argument is that investors might be better placed sitting tight for a year and reviewing performance after that time. Looking at the 12 month period up to the point that 10 recent ‘stars’ left their funds and comparing this to the annualised performance of their successor, seven out of 10 funds performed better under the new manager when judged against their peer group.‎ By switching funds you are incurring costs based on an unprovable and unquantifiable benefit‎.

“It is important for investors to remember that, in most cases, funds are fronted by a single fund manager but, in practice, run on a team approach. The investment team, the analysts and indeed the fund infrastructure, systems and processes will – in most cases – remain in place after a fund manager exit so by redeeming immediately an investor is really staking that the performance of the fund has been entirely, or at least overwhelmingly, the result of the brilliance of one individual. An additional factor to consider is that, when a star fund manager leaves, they often cite that they have felt constrained by the size of their fund and its performance may have begun to suffer. For many investors in a large fund, if there are outflows, performance may pick up because that fund no longer needs to ‘buy the market’ to the same extent and can be more selective as to where money is allocated.

“There are undoubtedly exceptionally talented individuals whose track record over decades sets them apart as unique investors. Our research does not set out to dispute this fact – but does indicate that following these individuals hastily, without considering the merits of the fund‎ going forward, is not always the best strategy.”

Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Seven ways to get help with energy bills this winter

We knew today’s announcement was going to be painful, but it’s still a shock to the system. When this kick...

Flight cancelled or delayed? Your rights explained

With no sign of the problems in UK aviation easing over the peak summer period, many will worry whether holida...

Rail strikes: Your travel and refund rights

Thousands of railway workers will strike across three days this week, grinding much of the transport system to...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week