Should you back the New Stars?
Fund management group New Star is on an advertising binge. But should you believe the hype and back its market-beating young managers?
Fund management group New Star is on an advertising binge. Bill boards throughout London are paying tribute to their own "New Stars" the young managers currently beating the markets.
Included among them is 27-year-old Jamie Allsopp, who took over the management of New Star's Hidden Value fund in October 2003. Since then, the £44m fund has done amazingly well: the FTSE All-Share has gained 44% and the average UK All Companies fund has gained 41%, but Allsopp has returned his investors 74%. It's impressive stuff, says Kathryn Cooper in The Times, but is Allsopp a true "wunderkind", or is this really no more than beginners' luck?
That's a tricky one to call, Justin Modray of Bestinvest told Cooper: "we generally like to see a five-year track record to make sure the performance is due to skill rather than luck", and Allsopp is still some way from having one of those.
Still, it probably can't all be put down to luck. The young fund manager has made a point of spending much of his time "looking into the whites of directors' eyes and going through their business plans to see if they have the cash, the growth and new areas to move into". This means he has managed to pick up on several good opportunities the rest of the market has missed.
Also in his favour, says eFinancialnews.com, is that New Star's "hard-to-please" chairman, John Duffield, has put £1m from his own pocket into Allsopp's fund. That's quite a vote of confidence.
Maybe, says Modray, but we should be cautious: much of Allsopp's recent success has been down to heavy investment in smaller firms that have outperformed for everyone over the last few years. That trend is now over, and Allsopp has no experience of operating in tougher times. How will he fare in a market shunning small caps and seeking blue chips? It's far too early to tell. That suggests, says The Daily Telegraph, that now might not be the time for the risk-averse to buy this fund it "might prove a bumpy ride".
Allsopp hasn't slipped up yet, but what if you're holding his fund when he does? Knowing when to sell is tough, says Heather Connon in The Observer. How can you know if "you have a fund which, despite a bad year, will produce a solid long-term performance, or whether your manager has gone off the boil"? You can't for sure. But to start finding out, get some research done. Find out if the management has changed in the past two years or so. If so, it may be that the new manager isn't as good as the old one. Also bear in mind that very specialised funds can be volatile, so short-term fluctuations can often be ignored.