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Recent announcements about
‘Star’ fund manager defections and new appointments draw into
focus once again the pitfalls of choosing actively managed unit trusts
in preference to passively managed or Tracker funds.
Three months ago Jupiter told
the world not to panic when their Star Manager of the Jupiter Income
Fund decided to take a 3-month sabbatical. "He’ll be back. He’s
taking a well earned rest", they said. Three months later it has
now been confirmed that his absence is prolonged and that he’ll not
be coming back in the foreseeable future.
Jupiter Income Fund has been
a real success story and has contributed a key element to the overall
success of Jupiter. Its performance, until 9 months ago, was truly
outstanding turning £10,000 in £42,422 over 10 years. The number of
investors has grown from a few hundred to nearly 250,000 and the size
of the fund is now a massive £1.49 billion netting for Jupiter a
colossal fee of over £21 million each year. No wonder the fund
manager was given star ranking!
And also no wonder that
Jupiter has been quick to head off the possibility of a deluge of
redemptions by emphasising the fund management style is a team
approach that’s not dependent on any one manager.
Is this right? And anyway
does style matter? All investors care about is whether it works or
not. So maybe investors are right to feel cheated that what they
bought is not what they got.
Whatever the truth one thing
is certain. Things are going to change. Already the new incumbent has
said he has a less aggressive style and that he will be cutting the
200-stock portfolio by 25%. That means costs will be incurred and
costs impact directly on performance. Not a good omen.
On the other hand 250,000
investors should perhaps give Jupiter the benefit of the doubt and
hold onto their units to see how things pan out. Unfortunately for
them it will be too late if the new manager proves to be a dud. After
all sticking it out with a fund manager is rather like a train
journey. When you arrive at your destination and realise that you
accidentally travelled 3rd class when you had actually
bought a 1st class ticket, try asking for a refund!
Jupiter is not the only fund
management group to be affected. Other high-profile active fund
managers have left M&G, Investec and Scottish Widows affecting
many thousands of other investors. Although some Star Fund Managers
really do justify the high fees and charges, the vast majority don’t.
How to avoid these problems?
Buy a ticket to ride on a tracker fund. There’s only one class – 1st
Class - with very low charges, very consistent performance and above
all, there’s never any need to change the fund manager – a black
box does his job.
Richard Carswell
20/4/00
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