Dean (pictured) only moved to the group just over a year ago following Schroders’ acquisition of Cazenove.The group gave no reason for Dean’s departure but has tried to calm investors by stating that the investment objective on both her UK Opps fund and her Schroder UK Growth Investment Trust will remain unchanged.
Hudson follows the same business cycle approach to Dean on his five crown-rated Schroder UK Alpha Income fund, while the board of the Schroder UK Growth trust has agreed that the business cycle investment team will continue to manage the portfolio for the immediate future.
“Schroders has an enviable track record of delivering for clients, across a breadth of products in UK equities to meet most investment needs,” Robin Stoakley, head of UK intermediary, said.
“The business cycle approach is a key investment strategy for us which is why we have appointed Matt Hudson, whose track record is excellent, to manage these funds.”
Dean had managed her Schroder, formerly Cazenove, UK Opportunities fund since December 2002.
According to FE Analytics, it is the 10th best-performing portfolio in the highly competitive IMA UK All Companies sector over this time with returns of 313.72 per cent, beating its FTSE All Share benchmark by more than 120 percentage points.
Performance of fund vs sector and index since Dec 2002
Source: FE Analytics
While the fund had gone through a period of poor performance prior to the financial crash, it has been one of the UK’s most consistent portfolios over recent years.
Our data shows it was a top quartile performer in 2008, 2009, 2011, 2012 and 2013 and second quartile in 2010. It beat the FTSE All Share in all six of those calendar years.
However, this strong performance has caused the popularity of the fund to increase substantially over recent years. Our data shows the now £2.1bn fund was just £165m in size this time three years ago.
Some commentators have attributed the fund’s recent underperformance to its much larger AUM.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
The major concern has been that Dean's strategy of following the business cycle approach to the UK equity market leads to higher portfolio turnover, and the larger size of the fund meant she had difficulty manoeuvring her portfolio around effectively.
The other concern was that the underperformance coincided with Schroders’ acquisition of Cazenove.
However, in an article earlier this year, Dean claimed the size had nothing to do with her underperformance, instead pointing to stock-specific issues and an overweight position in mid caps.
Ben Willis, head of research at Whitechurch, said he had started to become concerned about the size and performance of the Schroder UK Opps fund, but as he had been a long-term supporter of Dean, he was willing to give her more time.
However, now she has left, Willis and his team have exited the fund completely.
Although Willis says there were plans to close the fund when it was run by Cazenove, her new employers had stopped promoting it, which was something she was happy about.
“We’ve sold the fund this morning,” Willis (pictured) said.“We met her recently and we agree with her that the reason the fund has underperformed has been because of her business cycle approach struggling during the recent shift in style in the market. We were happy to hold onto the fund despite its size because it has done very well for us, but when the announcement was made, we took the decision to sell.”
“We were looking for an excuse to raise cash anyway because the FTSE is up to 6,800 again and we are concerned about possible volatility surrounding the Scottish referendum.”
Although Willis has sold the fund and admits that investors who hold Schroder UK Opps have a difficult decision to make, he does see Hudson as a good replacement and points out he has a decent track record using the same approach as Dean.
Hudson’s £850m Schroder UK Alpha Income fund, which was also a Cazenove fund, is a top quartile performer in the IMA UK Equity Income sector since its launch in May 2005. It has returned 128.7 per cent over this time, beating the FTSE All Share by 30 percentage points.
Performance of fund vs sector and index since May 2005
Source: FE Analytics
The fund is a top-quartile performer over three and five years but, like Dean, Hudson has slipped into the bottom quartile over 12 months.
“Our decision is nothing against Hudson,” Willis said.
“We have been aware of him for a while and we were watching his fund for some time because he has been putting in some good numbers by putting the business cycle approach into practice well.”
“However, it is a combination of a few things because we wanted to raise cash.”
For those investors who are looking for alternatives to the Schroder UK Opportunities fund, FE Trustnet will look through a number of options in an article later this morning.
