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Survival of the Fittest?

31st March 2023

We came across an interesting article in the Sunday Times the other day, talking about fund survival and longevity. The stats are a little scary. Citing Morningstar data, 72% of active funds launched over the past 20 years have closed down or merged, with almost half failing to make it to ten years. This prompted us to take a look at the sectors that our Funds operate in which revealed a similar picture. For example, a year after Vanbrugh’s launch in February 2009 there were 153 funds in its IA sector (Mixed Investment 20-60% shares), today only 60 of those still exist. Whilst some of this might be accounted for by sector moves, it still represents a huge rate of attrition, attrition that ultimately creates disruption and work for underlying investors.

We wonder if some of the high failure rate is explained by the coming and going of thematic funds which invest in the fad of the moment but fail to survive as investors move onto the next hot thing. The tendency for asset management firms to jump on the bandwagon late, and market products in fashionable areas when valuations are elevated, and most of the good returns from the story have already been realised, often results in poor investor outcomes and an understandably flighty investor base.

Elsewhere, the inexorable rise of passive investing has increased pressure on higher cost active funds, particularly closet index huggers. In the multi-asset space, solutions like the Vanguard LifeStrategy range have hoovered up assets in recent years, providing investors with low-cost traditional portfolios which (up until 2022) had performed well on the back of rising equity and bond valuations. Against this backdrop, having a unique investment process and the ability to deliver truly differentiated portfolios is important. Our broad investment universe including the extensive use of investment trusts and alternative assets as well as our benchmark agnostic, unconstrained approach has probably helped us stand out from the crowd in this regard.

Increased industry consolidation and the trend towards larger but fewer asset management firms is undoubtedly another factor, with fund mergers and rationalisation an easy win for CEOs to deliver the synergies and cost savings upon which M&A is often predicated. On a related point, whilst we’re sure individual managers everywhere have an enthusiasm for the funds they manage, we also suspect that the focus on overall corporate profitability is more acute at the larger asset managers where the stable of mandates offered is often vast. Shuttering sub-scale funds that don’t contribute to the bottom line makes sense from shareholders perspective, and whilst that may be bad news for the incumbent manager, the firm still has lots of other funds to flog to investors.

At Hawksmoor Fund Managers (HFM) we run 3 funds: Vanbrugh, Distribution and Global Opportunities. Without them, HFM doesn’t exist. The fund management team, based here in Exeter, have been managing these vehicles for many years and our founder and wise owl advisor, Richard Scott, remains very much involved. There is a deep connection with these Funds and all of us managing them have most of our savings invested in them, are rooted in Devon and love the team ethos and culture that has evolved over the years. A stable and content team is important but so too is the broader business context. Hawksmoor Fund Managers might not be a household name or well-known brand but is part of a broader organisation that has been operating since November 2007 and today has £2.8bn in assets under management.

We are extremely lucky to have a long-standing and loyal investor base and we hope to have repaid that faith by delivering outcomes that have met or exceeded expectations. We cannot, however, take the support of our unit holders for granted and fully understand that a protracted period of failing to deliver on our Fund’s stated objectives would rightly lead to outflows and questions over sustainability. Whilst our 3 Funds have each delivered on their stated objectives and generated sector beating long-term returns, we often liken our job to the race that’s never won or the finishing post that’s never reached. Being entrusted with the wealth of our underlying clients is a privilege and we embrace the healthy Darwinism that rightly sees consistently poor performing funds consigned to the dustbin of history. For our part we will and must continue to work hard to implement our process and to ensure we do all we can to continue delivering on our client’s objectives. Good performance combined with our passion for the Funds we manage should, we hope, help sustain Vanbrugh, Distribution and Global Opportunities through their teenage years and beyond.

In one sense then, survival of the fittest is apt here. Performance and investor outcomes are undoubtedly important. A bit like bringing up children however, fund longevity also relies on ample dollops of love, patience and commitment.

Ben Mackie – Fund Manager

For professional advisers only. This article is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC932.

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