Watch your manager

By DAILY MAIL REPORTER
Updated: 19:00 EST, 13 October 1999

The decline of one fund highlights the difference a change of manager can have on your savings.

Old Mutual European was a real high flyer as recently as the spring of 1998, perched atop the five-year European performance charts. Then the fund manager left, and it has been going downhill ever since.

Unfortunately, a change of fund manager is not an event that fund groups always tell investors about.

So you may not know that anything has changed until the performance figures start to reflect it, unless you invested via an independent financial adviser who reviews your funds on a regular basis.

An increasing number of advisers offer this service, but many investors will be left in the dark. Advisers generally suggest funds should be kept under review for six months after a change of manager, before any decision is made about switching out.

However, Mark Dampier, of advisory firm Hargreaves Lansdown, says: 'If it was a real star who was jumping ship, such as William Littlewood who runs Jupiter Income, I'd probably advise clients to follow him.

'But it is expensive to switch between management groups, so you have to be careful.'

It may not always be a cause for concern when a manager moves on, though. Justin Modray, of adviser Chase de Vere, says: 'Some groups genuinely work on a team basis, so a fund is not much affected by one individual leaving.' He cites Britannia Fund Managers as an example, with the recent departure of High Yield fund manager Scott McKenzie for Norwich Union expected to have little impact on the fund.

But in most fund groups, the fund manager is the most important factor in how well a fund does. Jason Hollands, of Best Investments, says: 'This makes it difficult to judge a fund on past performance alone, because a change of manager can render past performance irrelevant.' If investors know about a change of fund manager, and are unsure about the situation, Mr Modray says a good way to check is to ask about the rating given to the fund by independent ratings agency Standard & Poors Fund Research.

Two examples of funds that have lost ratings, and never regained them after a change of manager, are Morgan Grenfell European and GT Income.

The former underwent a very public fall from grace in September 1996 when manager Peter Young was charged with fraud. The latter lost its high-profile manager, Nick Train, to M&G in April 1998.

One fund that is undergoing a change that might concern investors is the £1.1 billion Schroder UK Enterprise. Jim Cox, who has run the fund since its launch in 1988, is taking early retirement in November due to ill health, and Philip Hardy, who currently runs the UK Equity fund, will be taking over.

The fund has done very well for investors in the past, but ran into a sticky patch a couple of years ago, and fell to the bottom of the performance tables in 1998.

It has recovered this year thanks to the revival in smaller companies and cyclical stocks, but the change of fund manager puts a question mark over the future direction of the fund.

Schroder says nothing will change, and the intention is to run the fund as it has been run in the past.

But Mr Hollands says: 'The worry is that the fund will be restructured more in line with the FT share index, which is what happened to an investment trust that Jim Cox ran until earlier this year.

'We are looking for funds with the potential to beat the index rather than match it, so this sort of change would be bad news.'

Advisers, meanwhile, are unanimous in saying investors should wait and see how things go before making any decisions about switching out of the fund.