What’s happened at New Star? Once a darling of the fund management industry, and one of its most prominent names due to a fondness for high levels of billboard advertising, the group saw its share price fall by more than 30% in a single day last week. From a peak of 523p a share last May, the shares are now trading at closer to 100p today, less than half the 225p the group listed at in November 2005.
But then news from the Knightsbridge-based group was pretty horrendous, says the BBC’s Robert Peston. “Poor investment performance; an outflow of funds; a savage dividend cut; a shocking profits warning. It doesn’t come much worse than that.” Indeed, it doesn’t – that is, unless you’re one of the fund managers rumoured to be getting the axe in the coming weeks. James Ridgewell – one of the New Star young guns who headed up its advertising campaigns – has already lost control of his UK Special Situations fund after it returned just 11% in the past three years against an average of 40%.
He wasn’t the only poor performer. In fact, of the 34 New Star funds with a three-year track record, only seven have been in the top 25% of funds in their sector, says Paul Farrow in The Daily Telegraph – a far cry from chairman John Duffield’s early boasts that he expected “85% of his funds to be in the top quartile”. So should investors get out?
“Mr Duffield has an excellent track record of picking and developing good fund managers and most people wouldn’t bet against him turning things round”, says Mark Dampier at Hargreaves Lansdown in The Times. And as Farrow adds, “a smidgeon of comfort for New Star investors is that no one will be seething more than Duffield”. And small wonder – he owns 8% of New Star, and reckons he has lost around £100m on paper from the peak following the collapse in its share price.
But turnaround or no, perhaps investors should think again about their holdings. After all, if Duffield’s hot shots have struggled in the dying years of the recent bull market, then how will they cope now that the good times are over?