Choosing whether to back fund managers and their process when they make a move to another firm or to stick with the original fund can be a challenging question for investors. 
There are a number of factors to take into account. For example, managers often leave behind a carefully-assembled team of analysts and researchers that can contribute much to performance.
Other factors include the size of fund, research capabilities and who the original firm finds to replace the outgoing manager.
As the average holding period for an open-ended fund is three years it is thus a suitable time frame for investors to gauge how well a fund manager has settled into new digs and how their replacement has fared.
So far in this series of managers moves from 2015, FE Trustnet has looked at Simon Brazier’s move from River & Mercantile to Investec, Trevor Greetham’s switch from Fidelity to Royal London and Sajiv Vaid’s transfer to Fidelity from Royal London.
This week, we took a look at Mike Riddell (pictured), who swapped M&G Investments for Allianz Global Investors in November 2015.
For this study we have focused on his £1.6bn flagship Allianz Gilt Yield fund, pitting it against his former £587m M&G Gilt & Fixed Interest Income fund.
Daniel Adams, senior investment analyst Psigma Investment Management, said he has held Allianz Gilt Yield for a number of years for core UK government bond exposure.
“The original guise of the fund was a joint venture with Pimco, who were – and remain – well-renowned in the fixed income space. This proved incredibly valuable to our clients during the credit crunch,” he said.
“As we emerged from the crisis, it was clear that Pimco assets were swelling to level that made them more difficult to manage, particularly in light of the of falling liquidity in markets.
“We welcomed the structure change of the fund in 2015 and already very familiar with Riddell from his M&G days, we were delighted with the appointment.”
Since moving to Allianz, he added that Riddell has inherited a much smaller book of business than he had at M&G, which should, in theory, give him a greater level of flexibility to be nimble and active, he noted.
Although the fund invests primarily in UK government securities, it can invest up to 20 per cent in bonds of equivalent credit rating. Currently 6.8 per cent of the portfolio is held in international holdings.
At M&G, Matthew Russell took over the Gilt & Fixed Interest Income fund when Riddell left. Russell joined M&G in 2007 before taking over the M&G Short Dated Corporate Bond fund in 2013.
Joined earlier this year by deputy manager Anjulie Rusius, Russell uses a top-down macroeconomic approach, including economic growth, inflation, regulatory issues and the yield curve, although the main area of focus is the manipulation of duration.
Since taking charge of the Allianz fund, Riddell has outperformed his former portfolio by 1.81 percentage points, as the below chart shows.
Performance of funds since Riddell started at Allianz
Source: FE Analytics
Sheridan Admans, investment manager at The Share Centre, said: “Since Mike left M&G and moved to Allianz to manage the Gilt Yield fund he has eked out a margin of higher returns over the M&G Gilt & Fixed Income fund, really making ground from early 2017 onwards.”
Riddell has achieved this with higher Sortino ratio – a risk-adjusted returns measure focused on a fund’s negative volatility – over his former M&G fund, while taking on a higher degree of beta risk.
“Returns have chiefly been driven by Mike’s ability to manage duration around the benchmark,” Admans added.
The Allianz fund is also included on the FE Invest Approved List, with Riddell highly-regarded by the analysts.
“Riddell tries to add value by altering the interest rate sensitivity of the fund (the duration) by buying securities of different maturities and by selecting individual stocks he thinks will do well thanks to technical aspects of the buyers and sellers in the gilts market,” they noted.
“We believe Riddell is a good choice as manager given his experience in diverse parts of the bond market utilising macroeconomic analysis.”
But the FE Invest analysts noted that “there is no strong evidence that the manager can consistently add value to the index over the longer term”.
As such, while Riddell has done well at making tactical shifts that have overall added value, so far, they noted, investors should not expect too much more than a few percentage points of value above that of the FTSE Actuaries UK Conventional Gilts All Stocks index.
The Share Centre’s Admans added that the strong returns made so far under his tenure may be more difficult to replicate in the years ahead as the Bank of England raising rates earlier this month.
Indeed, the central bank could raise interest rates at least twice next year, according to analyst forecasts, which means that the market environment that the manager has enjoyed over the past three years is beginning to change.
But Admans noted: “Mike certainly has proved his active approach to yield curve; off benchmark and duration management can also provide an edge.
As such, he said a blend of both strategies may be a good idea for investors wanting UK government bond exposure.
“Looking ahead over the longer term, how the managers allocate the off-benchmark assets and duration management may be essential to investor returns and holding a combination of such strategies might be prudent,” he said.
Allianz Gilt Yield has a yield of 1.41 per cent and a clean ongoing charges figure (OCF) of 0.54 per cent. M&G Gilt & Fixed Interest Income has a yield of 1.33 per cent and an OCF of 0.66 per cent.