A tale of two fund managers: style does matter

Neil Woodford and James Anderson are fund managers with two very different records of success. And, while that may not all be down to their investment style, it is an important part of it, says Merryn Somerset Webb.

If history bothers to remember big-name fund managers, two will stand out from the latest generation. The first is Neil Woodford, who will mostly be remembered for losing an awful lot of people an awful lot of money. Anyone who invested in his Woodford Equity Income fund at launch will have lost just over 20% of their money. Anyone unlucky enough to invest at its peak in 2017, when the fund was managing more than £10bn, will be down over 40%. Miserable. 

The second is Baillie Gifford’s James Anderson, who will mostly be remembered for making an awful lot of people an awful lot of money. In 2000, he took over management of the Scottish Mortgage investment trust. Since then it has returned 1,530%. The MSCI World has barely managed 270%. How? Anderson bet big on a better future – buying stakes in hugely innovative growth businesses, often long before they went public (the first was Alibaba in 2012) and doing so with conviction. The trust’s top ten holdings tend to make up around 50% of its total assets. This worked – partly because he is an exceptional stock picker and partly because the low interest rate environment of recent decades has proved a tailwind for growth stocks (if you can’t get much income elsewhere, the opportunity cost of holding shares in companies that use their cash to grow rather than pay dividends is low), as has the pandemic. The result? We love Anderson – Scottish Mortgage has been the main driver of the outperformance of MoneyWeek’s investment trust portfolio. So does everybody else – he is “a true visionary” says the head of fund research at Interactive Investor.

If you were feeling uncommonly kind, you could say the difference between Woodford and Anderson has been as much a matter of style as anything else – the former made his reputation as a value investor, and value has long been nastily out of fashion. Anyone who had money with Woodford or who has followed his story is unlikely to feel that kind (the downfall of Woodford Investment Management was as much about terrible governance and style confusion as anything else). That said, style does matter. And now might be a good time to ask if Scottish Mortgage’s high-conviction growth style is still one we want to own. Inflation is probably on the way. Bond yields have been rising. The prices of the kind of stocks Scottish Mortgage likes are very high – and tech has been struggling. At one point this year, Scottish Mortgage was 28% off its peak. So, with the news that Anderson is soon to retire, do we keep it? 

We do. Tom Slater – currently Anderson’s co-manager – is very good. Baillie Gifford has a strong team offering support, and odds are that whatever the wobbles, the portfolio has enough brilliance in it to outperform long term. Analysts may not be lining up to call whoever is in charge in 13 years a “true visionary”, but I’m pretty sure they won’t be suing either (there are various Woodford-related court cases on the go)! All that the retirement might prompt you to do is to rebalance a bit. If you haven’t sold any for a while it may now make up a large part of your portfolio. That’s fantastic in some ways (you made money!). It’s terrible in others (if it goes wrong you’ll lose a lot of money!). So do diversify. Your investments are there to help you to improve your long-term quality of life. If any one of them keeps you up at night more than very occasionally, something has gone wrong

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