Fund changes explained

Understanding the implications of Fund changes

A change of Manager

A Fund provider will issue a communication if a Fund Manager resigns, retires or sadly dies. It is quite normal for Fund Managers to seek pastures new and most companies will have succession planning for older managers.

You may have been attracted to a particular Fund because of the high profile of its manager, his reputation in the industry and the past performance that he has delivered. So to hear that he or she is no longer at the helm can be unsettling and you may wish to move your money to the manager’s new company.

However, there are a number of things you should consider. Firstly, is there a genuine reason for the departure? If the manager retires it is likely that his firm will have had a succession plan in place. If he works for a large business the chances are that there is an assistant or co-manager who can step into his shoes with minimal disruption.

When a Fund Manager leaves to join a competitor or set up on his own you need to decide whether to follow him. Consider how highly regarded he is in the market (there will be considerable press comment if he is) and the importance of the team around him; are they moving too?

Alternatively, a manager may take his Fund with him, perhaps to a start-up venture – do you follow him or was the Fund Company itself a key reason that you invested in the Fund in the first place? Does the successor have a strong track record?

Occasionally, a reshuffle may be a response to disappointing performance. In such a case you may want to give the new Manager a chance to turn the Fund around.

A change of strategy/investment policy/objectives

This is usually to take advantage of new opportunities in prevailing market conditions. A change in strategy may coincide with the appointment of a new Manager of the Fund who wishes to employ his own proven style. The policy may change to include new financial instruments or investment areas. Objectives may be adjusted to satisfy investor demand for greater focus on themes such as income or diversification.

Management charges

In the current competitive environment, this is, fortunately, more likely to concern a reduction in your charges.

An example of this is when M&G announced that they were making changes to the way fees are deducted. Holders of income share classes will have charges deducted from capital to maximise income distributions while accumulation shares will have charges taken from income to give more scope for capital growth.

Soft/hard closure of a Fund

Soft closure is when a Fund is closed temporarily to new investment so can only be sold and not bought. Also, there may be an initial charge or high minimum investment. It is more likely to affect specialist Funds which invest in less liquid securities such as Smaller Companies. If demand is high a Fund may reach a size that would be difficult to manage if it grew any larger. Both Aberdeen and Stewart Investors have soft closed their Emerging Market Funds in the past for this reason.

Less commonly, a Fund could be hard-closed. This is when no further inward investment is permitted and the Fund will no longer be offered.

Suspension of trading

This action is likely to be taken when there is a significant increase in buy or sell orders and the underlying assets are relatively illiquid. It is done to ensure that all investors are treated fairly and not put at any disadvantage. Following the Brexit vote there was an immediate exodus from UK direct property Funds leading to most of them temporarily suspending withdrawals.

Fund mergers/takeovers

Mergers may occur when a provider has a wide range of Funds and some have considerable overlap or are too small to be profitable. For example, Investec merged its Strategic Bond Fund into its Diversified Income Fund as the latter’s multi-asset approach was considered more likely to meet the objectives of sustainable income with low volatility.

Fund provider takeovers

This situation can be more difficult to assess. Over recent years there have been many mergers and takeovers in the Fund Management industry such asAberdeen Asset Management buying Scottish Widows Investment Partnership. These deals often get a lot of press coverage on the merits or otherwise which may help you make a decision.

The biggest risk is redundancy for the Fund Manager(s) running your money. Logic would dictate that the best will survive the cuts but it could also favour those from the company dominant in the merger. It is also possible that similar Funds may be merged to take advantages of economies of scale or that managers will be unsettled by changes and decide to leave.

Winding up/closure of a Fund

This is usually due to the fact that a Fund has shrunk to a size where it is no longer commercially viable, perhaps because the area in which it invests has fallen out of favour. More often than not a Provider will offer the chance to switch into another of their Funds but in some instances, there is no alternative option and cash is returned to holders.


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