Have you ever wondered why some investment trusts seem stuck in a rut, no matter who’s at the helm? It’s tempting to think a new manager can swoop in and turn things around, like a fresh coach revitalizing a losing team. But in the world of investment trusts, swapping faces often feels like rearranging deck chairs on a sinking ship. The real issue lies deeper—strategy, not personnel, holds the key to unlocking performance.
The Myth of the Managerial Fix
Investment trusts, those pooled vehicles that trade like stocks but hold diverse assets, often face scrutiny when returns lag. Boards, under pressure from shareholders, sometimes opt for the most visible change: replacing the fund manager. It’s an instinctive move. After all, who hasn’t blamed the coach when the team keeps losing? Yet, history shows this quick fix rarely delivers the turnaround investors hope for.
Take the case of a well-known Japanese small-cap trust. After years of dismal returns—think a 25% drop in net asset value (NAV) while peers soared—its board signaled a potential shake-up. The threat of a managerial change loomed, alongside talks of a new strategy or even a merger. But is a new face really the answer? I’ve seen enough trusts try this to know it’s not a silver bullet.
Changing managers without rethinking strategy is like repainting a car with a broken engine—it looks better, but it still won’t run.
– Financial analyst
When Manager Swaps Work (and When They Don’t)
Let’s dive into a success story. About five years ago, a UK-focused trust swapped its management team but kept its value investing approach—betting on undervalued stocks rather than chasing high-flying growth names. The result? A stellar 148% return, nearly doubling the broader market’s performance. The catch? The board didn’t just change the manager; they stuck to a strategy that was poised for a rebound. Timing and discipline trumped the new name on the door.
Contrast that with another trust that pivoted to a growth-oriented mandate during a market shift. The new managers, riding high on past successes, hit a wall when growth stocks fell out of favor. The trust floundered, and shareholders were left wondering why they bothered with the change. It’s a classic case of bad timing—new faces can’t outrun a flawed strategy.
- Success factor: Aligning the manager change with a market cycle that favors the existing strategy.
- Pitfall: Switching managers and style at the peak of a trend, only to miss the market’s next wave.
- Key takeaway: A new manager needs a clear, adaptable strategy to make a difference.
The Strategy Trap: Style Matters More Than You Think
Here’s where things get tricky. Investment trusts often lock into a specific style—value, growth, or something in between. Changing managers without revisiting this style can lead to mixed results. For instance, one trust moved from a steady, conservative approach to a more aggressive one, only to stumble when its new bets (like a heavy allocation to volatile markets) backfired. The lesson? A new manager inheriting a mismatched strategy is like a chef forced to cook with the wrong ingredients.
In my view, boards need to ask: Is the strategy still relevant? A trust focused on small-cap growth stocks might struggle in a market favoring value or large caps. Instead of swapping managers, boards should first evaluate whether the trust’s core approach aligns with current market trends. Sometimes, the answer isn’t a new face but a new playbook.
The Data Behind Manager Changes
Let’s look at the numbers. A study of trusts that changed managers over the past decade shows mixed outcomes. Roughly 60% of trusts that switched managers but kept their investment style saw improved performance within three years. However, trusts that changed both managers and style—like moving from UK equities to global growth—only saw success 30% of the time. Why? A new style often comes with a learning curve, and markets don’t wait for managers to catch up.
| Change Type | Success Rate | Average Return (3 Years) |
| Manager Only | 60% | 12% annualized |
| Manager + Style | 30% | 5% annualized |
| No Change | 45% | 8% annualized |
The data speaks for itself. Sticking with a proven strategy while upgrading management tends to outperform drastic overhauls. It’s not about the new manager’s brilliance—it’s about giving them a framework that works.
Case Studies: Hits and Misses
Let’s break down a few examples to see what works and what doesn’t.
The Emerging Markets Misstep
One trust focused on emerging markets decided to shake things up by bringing in a new management team. The new managers, eager to make their mark, dove into high-risk bets just as geopolitical tensions flared. The result? A sharp drop in returns, with the trust lagging its benchmark by 20% over two years. Only recently has it started to recover, thanks to a more cautious approach. The lesson here is clear: bold moves by new managers can backfire without careful timing.
The UK Growth Flop
Another trust, focused on UK growth stocks, swapped managers hoping for a revival. The new team leaned heavily into trendy sectors, but the UK market’s sluggish performance dragged them down. Five years later, the trust’s returns remain lackluster, trailing the broader market by 15%. Perhaps, as I’ve often thought, betting on “growth” in a stagnant market is a recipe for disappointment.
The Quiet Success of Stability
Not every story ends in frustration. A trust specializing in global income and growth found stability by sticking with a low-risk, dividend-focused strategy after a manager change. The new team didn’t reinvent the wheel—they refined it. The result? Steady, if unspectacular, returns that kept shareholders happy. Sometimes, less is more.
Stability in strategy often trumps the allure of a shiny new manager.
Why Boards Get It Wrong
Boards often face immense pressure to “do something” when performance lags. But in their haste, they can misjudge what’s needed. I’ve seen boards swap managers without asking the tough questions: Is the trust’s style still viable? Are market conditions temporary or structural? Rushing to replace a manager can signal action to shareholders, but it’s often a hollow gesture if the underlying issues—strategy or market fit—aren’t addressed.
Consider the Japanese small-cap trust again. Its focus on growth stocks has been out of favor, with value-oriented peers outperforming by a wide margin. But recent data suggests growth may be making a comeback. Should the board ditch their strategy now, just as the tide turns? In my experience, that’s a risky move. Patience, paired with a fresh perspective from a new manager, might be the smarter play.
- Assess the strategy first: Is the trust’s investment style still relevant to current markets?
- Evaluate timing: Is the market cycle favorable for a style shift or a manager change?
- Consider continuity: Can a new manager work within the existing framework effectively?
The Role of Mergers and Internal Tweaks
Sometimes, the answer isn’t a new manager or strategy but a structural change. Trust mergers have a surprisingly strong track record. By combining assets, trusts can reduce costs and gain scale, often boosting returns without the upheaval of a style shift. For example, a Japanese small-cap trust merged with a larger counterpart, streamlining operations and delivering better returns for shareholders.
Internal changes, like tweaking a portfolio’s focus or adjusting risk levels, can also work wonders. One trust I followed shifted its weighting from high-risk growth stocks to more stable dividend-payers, all under the same manager. The result? A 10% uptick in annual returns without the drama of a full overhaul.
What Should Investors Do?
If you’re invested in a struggling trust, don’t hold your breath for a new manager to save the day. Instead, dig into the trust’s strategy. Is it aligned with current market trends? Does the board have a clear plan, or are they just throwing darts? Here’s a quick checklist for investors:
- Check the NAV discount: A wide discount to net asset value might signal opportunity—or deeper issues.
- Compare performance: How does the trust stack up against its benchmark and peers?
- Assess the board’s plan: Are they addressing strategy, or just swapping names?
- Look at market cycles: Is the trust’s style poised for a comeback?
In my opinion, the best trusts are those that adapt without overreacting. A new manager can bring fresh energy, but only if they’re playing the right game. For the Japanese small-cap trust, sticking with its growth focus while giving a new manager room to refine the approach could be the winning move.
The Bigger Picture: Patience Pays
Investment trusts aren’t quick-fix machines. They’re long-term vehicles, and success often comes from riding out market cycles, not chasing the latest trend. I’ve always believed that patience, paired with a sound strategy, beats the knee-jerk urge to change managers. The data backs this up: trusts that stick to their knitting while making thoughtful tweaks tend to outperform those chasing radical overhauls.
So, what’s the takeaway? New faces can bring energy, but they’re not magicians. For investment trusts to thrive, boards and investors need to focus on strategy alignment, market timing, and sometimes a bit of patience. The next time you hear a trust is swapping managers, ask yourself: Are they fixing the real problem, or just putting a Band-Aid on a broken strategy?
Strategy is the compass; managers are just the navigators.
– Investment strategist
Perhaps the most interesting aspect is how often we overlook the obvious. A trust’s success hinges on its ability to adapt to markets, not on who’s calling the shots. Next time you’re eyeing a trust, look beyond the manager’s name—check the playbook they’re using.
