Backing the rookie: fund managers under pressure

Starting a new job can be both exciting and daunting. You want to show what you can do and prove to your new employer that they were right to choose you. You want your new colleagues to like you. The same is true for fund managers.

Pressure to perform

As in all walks of life, fund managers sometimes change jobs. Some run different types of fund with the same company, others go to a different organisation entirely. And there is always the worry: will they do as well – or better – in their new role or will it turn out to be a mistake? We are often asked what investors should do when their fund has a change of manager. Should they move their money, or put their faith in whomever replaces them?

So there is a lot of pressure on a fund manager to produce the goods, particularly in their first year when all eyes are upon them.

Ken Nicholson, manager of Mirabaud Equities Europe ex UK Small & Mid fund, moved to the company two years ago from Standard Life Investments (SLI). At SLI he had successfully run a European smaller companies equity fund and he left to join Mirabaud and launch a competitor product.

His investment process is exactly the same and we backed him in his new role, believing he could successfully transfer his skills. So far, so good, but it hasn’t been a smooth ride.

We met up with him earlier this month, to see how things were progressing.

Work/life balance or Investment/marketing balance?

As a marketing person, I love a fund manager who is willing to spend time talking to clients and journalists. As an investor, I want them poring over balance sheets or on a company visit – thinking about how best to invest my money.

Like finding a work/life balance, striking a balance between how you spend your working day can be difficult, particularly when you need to sell a new fund.

Ken says that while the fund’s performance has been pleasing, he did spend too much time meeting clients and not enough time bedding down his new partnership with co-manager Trevor Fitzgerald. They have since redressed the balance and are tweaking their initial screening process to reject more ideas at an early stage and narrow-down their ‘watchlist’ to help them make decisions more quickly and more effectively.

Opportunities today

Opportunities today are as great as ever, according to Ken. Valuations are making it harder, but certainly not impossible, to find hidden champions.

Invariably, Ken and Trevor are investing in companies that are not household names, but which are world leaders. Europe’s ‘Mittelstand‘ – a deep pool of small and medium-sized companies, which are less well covered by analysts and often overlooked – is full of hidden gems. Stocks that are, in Ken’s words, plodders not disrupters, but which compound nicely year after year after year.

Their ability to constantly innovate, improve and adapt has proven to be a source of sustainable competitive advantage. Companies like Ambu, a Danish global leader in emergency resuscitation with their Ambu bag, right through to Fila, the pencil manufacturer.

This is a high conviction fund that is very different from most of its peers. Ken and Trevor aims to find the ‘hidden champions’ that other funds have missed. They ignore European politics (quite a feat these days!) and most macroeconomic factors, preferring to focus on individual companies.

They love meeting companies and unearthing new ideas. Their mantra is “you can’t find the hidden champions by sitting at your desk looking at Bloomberg screens”, so they have an intensive and targeted road-trip programme to meet as many companies as possible. Since the fund’s launch in November 2015, they have met more than 450 companies across developed Europe. This is the key to the team’s success, along with focus and discipline.

Ken’s long-term performance has been extremely consistent. He has beaten his index in almost every calendar year. While the fund is quite volatile, as one would expect from the nature of the asset class, it has delivered some of its strongest outperformance in a falling market. This continues to be the case in his new role.