Many investors will want to see returns over more than a three year period before committing to a fund, so what about new launches?
Thursday 07 Feb 2019 Author: Holly Black

Investors are often told they should wait until a fund has a track record of at least three years before they trust their money to it.

This is, it is said, long enough for the manager to prove that their strategy works and that the fund will perform as promised. But a fund needs money to invest in order to produce that track record. It is something of a catch 22 for fund houses and a dilemma for investors.

Ryan Hughes, head of active funds at AJ Bell, explains: ‘Many investors like the comfort of a three year track record because it essentially provides a proof of concept to show that the fund manager has the ability to deliver good performance.’

Yet investors are clearly not always following this advice. When Fundsmith last year launched investment trust Smithson (SSON), investors piled an incredible £822m into the vehicle – the biggest trust launch on record. Renowned emerging markets investor Mark Mobius raised £100m for the launch of his new fund firm’s first investment trust, Mobius Investment Trust (MMIT).

Elsewhere, it’s been slower going. Richard Penny’s newly launched FP CRUX UK Special Situations (BG5Q5V0) fund currently has just £11m of assets under management and the Octopus UK Multi Cap Income Fund (BG47Q44), which launched in November, is running just £4m of investors’ money.


What seems quite clear is that big name managers can attract big bucks without proving a track record. Smithson, for example, is Fundsmith’s first foray into investing in smaller companies and the trust will not actually be run by veteran investor and founder Terry Smith himself, another first for the group. Yet the stellar track record of Smith’s flagship vehicle Fundsmith Equity (B41YBW7) appears to be proof enough for investors.

Ben Yearsley, director at Shore Financial Planning, says: ‘If I’m convinced by a manager then I’m happy to back a newer fund. However, the manager will need to have a decent history elsewhere.’

Hughes agrees: ‘I prefer to look at the track record of the manager, particularly if they were running a similar fund for a different company. I can get comfort that the new fund will operate in a similar manner and then I am comfortable investing long before the three-year track record is reached.’


Merian Global Investors has just undergone a major rebrand (it was formerly Old Mutual Global Investors) as well as launching its first ever investment trust. Merian Chrysalis (MERI) trust focuses on private equity investments and is managing just under £100m.

Warren Tonkinson, managing director of distribution at Merian Global Investors, explains: ‘Launching new funds can be a tricky business so it’s imperative to consider the market conditions and appetite for a product before you go ahead.

‘There has to be investor demand and a gap in to the market – there is no point launching a fund into a crowded space where investors can buy an existing product they already know and trust.’

As well as that investors need confidence in the trust. This can be bolstered if the manager is putting their own cash into the fund.

For example, Terry Smith committed around £250m of his own money to the Smithson trust while the entire team at Mobius has invested in their own trust.

Carlos Hardenberg, partner at Mobius Capital, thinks having a strong track record and a fund that investors understand is key. In today’s price-conscious world, he believes that getting the fees of a fund at the right level is important too.

The consequences of not getting these factors right can be brutal – funds are often scrapped or merged into other similar mandates if they cannot attract enough capital to make them viable for the group to operate.

Hardenberg adds: ‘Raising money is always a challenge; people need to trust you as a stable team and have confidence that your process can deliver robust results. We have proven to the market that we have a track record in different strategies over the long term as individuals.’


For this reason, many managers tend to stick to areas they know when it comes to new fund launches.

Mark Mobius has invested in emerging markets for decades, Merian’s Richard Watts has already proven himself in the smaller companies investment space, and Richard Penny has previously managed the very successful L&G UK Special Situations (B3DMY12).

Yearsley adds: ‘I think three years was seen as a decent length of time to see how a manager performs in different market conditions, but that hasn’t been true of recent years. You want to know how they react in different scenarios – that’s more important than an arbitrary length of time.’


Daniel Coatsworth, who edited this article, has a personal investment in Smithson and Fundsmith Equity

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