A few years ago, I had the pleasure of interviewing a couple of global equity managers at an event.
There was a philosophical tension between two of them. The one was happy buying a great company at a fair price and the other thought it was far better to do the opposite and own a fair company at a great price.
The one owned ‘safer’ companies like Visa, Amazon and Microsoft, and the other more ‘distressed’ companies such as Anglo American, Natwest and Lukoil. You would neatly categorise the latter as value and the former as growth/quality.
I asked the manager of the ‘growth’ strategy why he ran money in that way and his answer stuck with me. Besides believing it was sensible, he looked at the value manager and said: “It is just easier.”
He was right; many a career has been cut short by being a value investor. It is far more comfortable owning popular names with secure earnings growth than the value names, often with bad news headlines, riskier business models, even if their prices are depressed.
There is also a feast-or-famine pattern to value investing. It gives you nothing for ages, then usually pays you out multiples, at times of market stress.
In fact, the last time value investing did fantastically was in 2009, when equities rerated meaningfully and value stocks rallied. That means 11-plus years of quite barren returns and counting.
And it has finally come at the cost of a few careers. Within the UK value space we are seeing some of the most experienced managers either leave their employment or get shifted away from lead manager roles. Below is a table explaining this.
Manager | Years Experience | Date | Fundhouse Comment |
Neil Woodford | 32 | Oct-19 | Funds closed |
Alastair Mundy | 31 | Apr-20 | Takes leave of absence |
Mark Barnett | 28 | May-20 | Departs |
Tom Dobell | 28 | Sep-20 | Announces departure |
James Henderson | 37 | Sep-20 | No longer lead manager |
Source: Fundhouse
We appreciate that the explanations for each person’s departure or role change may differ, and that not every manager on the list was necessarily fired or has had an end to their career.
But, purely looking at this data, you find five well-established UK equity multi-cap managers that are no longer running their flagship open-ended funds, following periods of poor performance. And they are all contrarians, with a value approach.
They have also seen a few things. Each has been through multiple crises since the 1990s and, up until the last few years, had a good long-term track record. The average experience lost is over 30 years, too.
Even more recently, another UK value manager – Richard Buxton – became a casualty on the Jupiter UK Growth trust, after it was decided to close the trust.
Granted it was small and he had only recently been appointed, but it seemed the stakeholders felt it was too difficult to turn it around.
What do we make of these people moves? We acknowledge that changes of portfolio manager happen for all sorts of reasons. But the number of value managers finding themselves on the sidelines is mounting. It tells us a few things, probably. First is that the businesses employing these managers may have run out of patience.
