Star fund manager Alastair Mundy has been put on long-term sick leave, prompting the board of £509million investment trust Temple Bar to give notice to existing managers Ninety One.
The announcement came after the board confirmed last week that Mundy would be taking an extended leave of absence for health reasons, though said these were unrelated to coronavirus.
Ninety One – formerly known as Investec Asset Management – has parachuted Alessandro Dicorrado and Steve Woolley to take over from Mundy while the 12-month notice period is served.
Alastair Mundy, who has been managing Temple Bar since October 2002, is well known for his value style of investing – a style which has unfortunately been out of favour for the last decade
Dicorrado and Woolley worked closely with Mundy for many years, and are currently co-managers on the Ninety One Global Value strategy.
However, investment trust Temple Bar, has been run by well-known fund manager Alastair Mundy since 2002, delivering an almost 200 per cent return to investors since he took the helm.
While over the shorter term it has not performed as well and was down 47 per cent over the past year to 21 April, Mundy’s departure is likely to be seen as a blow to investors.
The trust’s board said they did not wish to ‘pre-empt the results’ of its review of Ninety One’s management, adding that it was ‘certainly possible the existing management arrangements will be maintained’.
Over the past year to 21 April 2020, Temple Bar is down 47 per cent, well behind its AIC UK Equity Income sector average loss of 23 per cent and its FTSE All Share benchmark loss of 21 per cent.
The trust has always followed a value approach – which involves looking for stocks that appear to be trading for less than their worth and have, as the manager believes, the potential to rise in value in the future.
For many investors the investment in the trust would have been based on Alastair Mundy’s ‘star manager’ reputation — Numis
Mundy has made a name for himself over the course of his career for being adept at this particular method of investing.
However, the style has largely been out of favour over the past decade, dominated by quantitative easing, low interest rates and no real inflation.
As a result, Temple Bar has seen mostly negative returns over this period.
Priyesh Parmar of the investment companies research team at Numis said: ‘Alastair Mundy was a high profile manager and had a strong following with retail and professional investors.
‘He was lead manager of Temple Bar since 2002 and for many investors the investment in the trust would have been based on his ‘star manager’ reputation and distinct style.
‘Typically, we see managers or management groups being given a period of grace when a manager goes on sick leave, but in this case it comes after a period of significant deterioration in performance, and the board already clipped the wings of the manager through a reduction in gearing in late March.
‘As a result, we can understand the board conducting a review, whilst not ruling out sticking with the existing management team. The serving of protective notice gives the board flexibility in the event it decides to change manager.’
Temple Bar investment trust is down 47 per cent over the last 12 months
Investment trusts differ from traditional open-ended funds in that they are overseen by independent boards of directors who can decide which asset management house and which portfolio manager will run them.
Some may see the board of Temple Bar’s decision to serve notice just days after the news of Mundy’s leave as hasty, while others may see it as a demonstration of the board’s independence and decision to put shareholders’ interests first.
The investment trust research team at Winterflood Securities said: ‘We would not be surprised if relations between the board and Ninety One have been strained for some time.
FundCalibre’s McDermott believes a change in approach is not out of the question
‘Technically the board could have served protective notice without informing the market, thereby winding down the clock on the 12-month notice period, however, by making a public announcement, it allows an open and transparent process that more easily allows approaches from potential suitors.
‘We suspect that the newly listed investment manager will make a strong case to retain the mandate and be prepared to sharpen its pencil with regards to fees. However, this is its only investment trust mandate and it is not clear whether the profile of Alessandro Dicorrado and Steve Woolley will be sufficient to convince the board to stay.’
The strategic review is likely to take a number of months, particularly in the midst of the current market environment which has been hit by volatility as a result of the coronavirus crisis.
While Darius McDermott, managing director at FundCalibre, said the trust’s team-based approach means it is in good hands with Dicorrado and Woolley, he noted value investing has been out of favour for almost a decade and the possibility of an entire shake-up of the portfolio’s approach is not out of the question.
‘Clearly the board are taking this opportunity to review the manager. They will get consistency from Alessandro and Steve but given the current environment, the board might want to change strategy and go for a growth manager,’ he said.
‘I’ve known Alastair for some 20 years or so. He’s a great guy and been a great investor – a true contrarian. It’s concerning to hear that he has had to step down for health reasons and I wish him a speedy recovery.’
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