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

Recommended

Which assets will benefit as the “jam tomorrow” bubble pops?
Investment strategy

Which assets will benefit as the “jam tomorrow” bubble pops?

With tech stocks, cryptocurrencies and many other “long duration” investments crashing hard, the “jam tomorrow” bubble looks to be bursting. John Step…
24 Jan 2022
Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Guillaume Pousaz of Checkout.com: the surfer dude catching the fintech wave
People

Guillaume Pousaz of Checkout.com: the surfer dude catching the fintech wave

Guillaume Pousaz moved to California to pursue his love of surfing, and landed in Silicon Valley. He then rode the fintech gold rush to a multi-billio…
23 Jan 2022
Just how green is nuclear power?
Energy

Just how green is nuclear power?

Nuclear power is certainly very clean in terms of carbon emissions, but what about the radioactive waste produced as a byproduct? It’s not as much of …
22 Jan 2022

Most Popular

Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022
Interest rates might rise faster than expected – what does that mean for your money?
Global Economy

Interest rates might rise faster than expected – what does that mean for your money?

The idea that the US Federal Reserve could raise interest rates much earlier than anticipated has upset the markets. John Stepek explains why, and wha…
6 Jan 2022