Neptune’s battle to maintain returns

Five years ago, when the financial crisis began, the shoot-the-lights-out outperformer of the UK retail market was Neptune Investment Management. Since then, crucial aspects of the firm’s performance have diverged.

As a company, Neptune is still on the up. Last year it passed the £7bn mark in terms of assets under management. This year it celebrated its 10th anniversary. In terms of personalities, the firm has been associated first and foremost with its founder Robin Geffen, who has not only served as its managing director, but also as its most senior investor. Now, however, he has a deputy, Richard Green, and a large team of homegrown investment talent. Neptune’s veteran head of research Chris Taylor is still at his desk, as is its sales director Patrick Berton. Five years ago, it was difficult to imagine what would happen to Neptune if Mr Geffen fell under a bus. Now he has not just several crack officers, but an all-terrain army of top-ranking and middle-ranking staff behind him.

In recent years, however, the returns on some core products have hit a soft spot. Over five years to July 4, Mr Geffen’s Balanced and Income funds have outstripped their benchmarks, according to FE Analytics, as have Neptune’s three most established regional funds – European, Japan and US Opportunities. The only flagship portfolio that has not outperformed its index over that period is Mr Geffen’s Global Equity fund – which undershot the MSCI World by more than 15 percentage points. Over the past three and four years, however, this “five out of six” record dips to “one in six” outperforming. Questions remain over how performance has slipped – and whether Neptune’s unusually comprehensive process can secure its landmark five year numbers over the next 12 months.

As head of client investment strategies Douglas McDowell has observed, reasons for this underperformance are in themselves divergent. The Global Equity fund took a sharp hit in 2008 when crisis-hit investors were forced to repatriate money from emerging markets – always one of Mr Geffen’s favoured areas. Investors have also become very nervous about the slowdown in emerging markets and particularly China over the last several months – which has affected some of Mr Geffen’s favoured positions. In the past three years, the other three funds have encountered unrelated difficulties.

During the extreme volatility of the eurozone crisis, Mr McDowell points out, the European Opportunities fund has been whipsawed more than average as its style is to trade more actively than some of its peers. The Japan Opportunities fund has underperformed the Topix by almost 40 percentage points as it hedged out the abnormal strength of the yen – which the manager has said repeatedly is in almost bubble-like territory. The US Opportunities fund took a more defensive stance that enabled it to outperform during the financial crisis, but led it to underperform during the recovery.