pa analysis mundy US mandate not great move

Investec’s Alastair Mundy is a blooming good fund manager with a proven long-term track record and an enviable reputation among his peers in the industry. But is giving him a US equity mandate one step too far?

pa analysis mundy US mandate not great move

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His reputation and track record have been built on his management of the Investec contrarian team as well as the firm’s £2bn Cautious Managed Fund and the £570m UK Special Situations Fund.

In-house management a good decision

He also runs the £23m Global Special Situations Fund and the half-billion pound Temple Bar Investment Trust.

As of 20 August, he will also run the Investec American Oeic and Sicav in place of US-based Thornburg Investment Management.

Firstly, it is a good thing that Investec has brought the management of its £400m American Fund in-house as Thornburg was abjectly failing its investors. What it did successfully was to avoid getting close to the performance of the S&P 500, languishing last of all the IMA North America funds over one and three years, and 65th of 69 funds that have a five-year track record.

Its year-to-date performance is -2.2% compared to a positive peer group average of 5% and 8.1% by the S&P 500 – it is only 88th in its sector because there aren’t 89 funds.

But would UK-based intermediaries trust Mundy, a man with an undoubted track record in UK and multi-asset investing, with their US equity allocation?

The answer right now is either “No” or, slightly more positively, “No, not yet”.

In practical buying terms, Mundy holds 4% of his Cautious Managed fund in US equities and 41% of his Global Special Situations Fund in the sector.

However, the contrarian approach works better when applied to his UK propositions, and some fund buyers feel it has still to prove itself on a global stage, US included. This does not mean it doesn’t work, or won’t work when applied to ex UK funds, but it is enough for some to keep the Mundy-run Investec American fund as a “wait and see”.

What UK investors don’t necessarily see is that a number of institutional investors have given him around $180m of segregated US equity mandates on the back of how they have seen him to be managing this part of his global contrarian propositions.

Needs time to prove himself

By its very nature, any contrarian approach takes time to work as Mundy is deliberately looking for out-of-favour companies that are in terminal decline, that other researchers or analysts think will never recover.

Investec recently took the £70m Investec Managed Distribution Fund away from Mundy and gave it to John Stopford and Max King to run instead.

Yet now they are giving him a £400m Oeic and a $74m Sicav to manage. Admittedly he is being more than ably assisted by Mark Wynne-Jones who already works on the Global Special Situations Fund with Mundy but, as one very respected fund buyer told me: “It is not a great move at this stage”.

Investec’s equity research team already has years of experience investing in US equities across its global fund range, onshore and offshore. Combined with its own Four Factor investment model and Mundy and Wynne Jones’ proven expertise as stock-pickers, there is no reason why they won’t turn this fund around.

In the meantime intermediaries are likely to look elsewhere, possibly not much further than the beta of low cost passive routes into the S&P 500.

Another thing the manager change does is give Morningstar OBSR a chance to re-evaluate how on earth it managed to give such a poor-performing fund a Silver Rating in the first place.

What do you think? Would you give your US equity allocation to Alastair Mundy to run? Use the comment box below…