The ‘football gods’ are responsible for all manner of received wisdom being spouted as fact by tattooed skinhead philosophers. Players always score against their former clubs, Scotland never get past the group stages and a new manager always brings an immediate uplift in team performance.
This last one particularly fascinates me. Footballers apparently unmotivated by the fact they earn multi-million pound salaries to play a game they love are suddenly able to play better simply because they have a new manager to impress.
You don’t need to be an avid fan to know that football managers don’t enjoy a great level of job security and every week the managerial merry-go-round presents fresh opportunities to prove this‘fact’. Even better, many new managers do get a result out of their previously inept charges, engraving the unwritten law ever deeper into our collective footballing conscience.
Sadly, like most received wisdom, it simply isn’t true. But, again like most received wisdom, its inherent wrongness doesn’t stop millions of people intelligent enough to know better from buying into the story.
As anyone with a basic understanding of statistics will tell you, what is actually happening is a simple reversion to the mean. Teams generally perform to an average expected level. If they perform below that level for a sustained period, the board is likely to respond by sacking the manager. Coincidentally, those same teams are more likely to produce a good performance to balance out their previous underperformance.
Whoever’s initials are emblazoned on the padded jacket in the dugout is incidental. In fact, studies have estimated the influence of a football manager to be as little as 15 per cent responsible for team performance.
The pressure that is being heaped on Barnett, along with outflows caused by panicking investors, will make the fund more likely to failI mention this in light of the general brouhaha that greeted Neil Woodford’s announcement of his impending departure from Invesco Perpetual, which saw every analyst worth their salt lining up to reclassify his funds from ‘hold’ to ‘sell’.
Maybe investors should bail now – although that is arguably nothing to do with the manager but rather because a reversion to the mean would predict a period of underperformance is likely to follow Woodford’s own stellar run.
But Invesco has moved quickly in announcing Mark Barnett as Woodford’s successor. And you could argue that, contrary to all of our industry’s own received wisdom, the new manager actually presents a strong case for continuity of performance.
The pressure that is already being heaped on Barnett, six months before he even steps into Woodford’s pinstripes next spring, along with any outflows caused by panicking investors, will combine to make the fund more likely to fail. The prophecy of doom becomes self-fulfilling.
But why should there be such negativity in the first place?
Anthony Bolton is the only fund manager in my memory to have enjoyed the same level of celebrity as Neil Woodford. Both are names that achieved the rare accolade of being recognised by some outside of the investment industry. When Bolton stepped down in 2007 there was a similar level of panic. But grounded in what? Sanjeev Shah who replaced him had worked with Bolton for years and, even if the man he was replacing did have some mystical insight, you would have thought that Shah might have picked up some of his tricks during their time together.
But nobody had heard of Shah, and, trying to assume the reins of an enormous fund in the face of all the resulting experts’ doubt, the Fidelity Special Sits faltered for a while. Sure enough though, he turned it round, continuing the level of performance set by his predecessor and establishing his own reputation as a star manager. He outperformed benchmarks to such an extent that the announcement of his own decision to quit earlier this year started another bout of handwringing. Apparently Shah’s departure was the biggest disaster for the fund since his arrival.
Like Shah, Barnett is no fresh-faced, naïve newcomer. Having spent 17 years at Invesco he has worked closely with Woodford. He talks of his role in an investment process that involves several senior heads “bouncing ideas around”.
If the huge Income and High Income funds do take a short term dive, it will not necessarily be a result of the team making the decisions being represented by a different face, and investors and analysts could be advised to be a little less hasty.
To return to the football analogy, Barnett’s accession should be more akin to Paisley following Shankly than Moyes following Ferguson.
