Back to the future
One cannot help but wonder what the likes of Nick Train and Terry Smith might view as their future legacy. Terry Smith was an investment analyst at James Capel (now HSBC Investment Bank) when I worked there in the 1980s. I knew him, though not well. His book, Accounting for Growth, published in 1992 sent shock waves through the investment industry, but probably gave him the opportunity to prosper in the way he has as it made him hard to employ in the investment banking world and probably encouraged him to establish his fund management business. In 2019 his was the only fund to rank in the top ten of those that attracted positive inflows that was not an index-tracker. It is now one of the biggest retail funds in the UK.
Train of thought
When Nick Train and Mike Lindsell set up their fund management business, I met with Nick and was encouraged to back the investment trust they launched at the outset, which is arguably the best investment decision I have ever made. A thoughtful and considerate manager, he would be the first to admit that successful positive runs can come to an end without warning. The problem, of course, is that as a star manager, your every decision is under close scrutiny so, when something does not go according to plan, you can expect plenty of media coverage on your apparent mistake.
Any golden rules?
There are no truly golden rules that investors and their advisers should follow when trying to decide whether a star manager is worth backing. Obviously, consistency in delivering above average returns is bound to encourage support, though no warning bells ring when the stance they have pinned their strategy to suddenly turns sour. Bill Mott, who I knew for years as a consistent income fund manager, suffered greatly in the wake of the financial crisis of 2007/08 when banks were forced to cut or even eliminate their dividends.
The Neil Woodford debacle highlighted the pressure these high-profile managers are under to deliver superior returns. His comeuppance came as a result of overloading his funds with illiquid investments in an effort to achieve the asset appreciation he knew his investors had come to expect. It might have worked in the long term, but doubtless now the regulator will be looking closely at the nature of investments held in open-ended funds where instant encashment is considered a right. So should advisers.
Brian Tora is a consultant to investment managers, JM Finn.
