When in March 2013 Richard Buxton unexpectedly quit Schroders after 12 years, taking fellow managers Errol Francis and Ed Meier with him, many observers questioned how the FTSE 100-listed company could recover the loss of its star UK equities manager.
While the acquisition of Cazenove Capital Management showed Schroders was not a spent force, there was still the question of who would take charge of its flagship UK Alpha Plus fund.
Schroders opted to bring in Philip Matthews from Jupiter.
Mr Matthews has embraced the challenge, putting his own stamp on the UK Alpha Plus fund with a series of changes to lower the fund’s volatility as is typical of his investment process.
But then he is no stranger to taking over from high-profile fund managers: at the time he was hired by Schroders he had been lined up to take over from Tony Nutt as co-manager of the £541m Jupiter High Income fund. Now he is in charge of a fund three times that size.
Mr Matthews began his fund management career at Jupiter in 1999, just two years after leaving Cambridge University. Rather than tread the well-worn paths of accountancy or economic studies, Mr Matthews learnt languages.
When asked how one goes from studying German and French to running a multi-million pound investment portfolio, the manager explains: “Languages appealed because it was a broad subject: you did a bit of history, politics, art, and literature. In some respects it’s similar to fund management in that you have to do lots of different things all at the same time.”
He argues that fund management is “not a job that is purely numbers driven”.
“A background in economics or accountancy is useful but it’s actually not essential,” he says.
After a year or so working in a property business after graduation, Mr Matthews says he realised fund management was indeed his calling. He cites the access to business owners and managers as having been a particular draw.
He first shadowed William Littlewood – now of Polar Capital – on work experience, while Mr Littlewood was in charge of the Jupiter Income fund, but Mr Matthews says it did not seem that long before he had his own pension fund mandate to run – less than two years, in fact.
The manager points out that his arrival coincided with “the end of the John Duffield era”, which meant there were some roles open at Jupiter.
“A few people left the organisation and there was a relatively rapid opportunity for me to directly manage money,” the manager recalls. “Having joined at the beginning of 1999 I was running a pension fund at the end of 2000, so it was a pretty quick start to my fund management career.”
It was Mr Littlewood’s successor on the Income fund – the now retired Tony Nutt – who asked Mr Matthews to make the move in 2006 from managing a UK smaller companies fund to taking sole charge of the Jupiter Growth & Income fund.
Mr Matthews’ experience with the small-cap fund was a “formative” period for his career and the development of his investment process.
“With smaller companies you have very direct access to company management, and these very often are people who have built up their own businesses,” he says.
“Companies that are smaller tend to have greater volatility of earnings, so when things go wrong they don’t have the benefit of diversity to shoulder some of those negative profit shocks.
“You learn pretty quickly some of the banana skins to look out for, so I think that’s a very good, formative place to start your fund management career.”
While he may have learned the ropes on the Jupiter UK Smaller Companies fund, it was on the Growth & Income portfolio that the manager further developed his process and reputation.
From taking sole control of the portfolio in 2006 until leaving Jupiter last year, Mr Matthews grew the portfolio from £40m to more than £400m, posting a return for the entire period of 83.5 per cent. This compared with an IMA UK All Companies sector average return of 40.6 per cent and a FTSE All-Share index return of 46.9 per cent.
Mr Matthews cites one of the attractions of fund management as its “incredible transparency” – something that may come as a surprise to those debating fees and charges.
“It is incredibly transparent as to whether you’re doing well or badly,” he explains. “Some people enjoy being in the spotlight and some people prefer to operate in a more team-based environment. Ultimately your performance as a fund manager is incredibly transparent. When you’re doing well it’s great; when you’re doing badly it’s not so great.”
For Mr Matthews the good periods have outnumbered the bad. While in charge of the Jupiter Growth & Income fund, the portfolio outperformed both its FTSE All-Share benchmark and the IMA UK All Companies sector average in 15 of the 30 quarters from Q3 2006 to Q1 2013. In only seven quarters did the portfolio fail to beat either of these comparators.
The manager has also been very open since taking charge of the Schroder UK Alpha Plus fund in explaining to investors what they can expect. Speaking to Investment Adviser earlier this year, Mr Matthews said he had reshaped the portfolio to place more emphasis on a defensive stance. As well as this, he also directly addressed the question of whether his process could live up to the implied promise of the ‘Alpha Plus’ brand. After all, predecessor Richard Buxton was often candid in admitting his fund’s aggressive style would invariably place him in either the top or bottom quartile in the performance charts.
In spite of the managers’ differing styles, Mr Matthews said earlier this year he was “very comfortable” with the Alpha Plus title, which now applies to five of Schroders’ equity products following the closure of a US fund late last year.
“Alpha funds have historically been marketed as very concentrated funds – in order to be an alpha fund, you’ve got to have a small number of very high-conviction ideas,” Mr Matthews says.
“[I want to] generate alpha through high risk-adjusted returns. That can be done in different ways, but I want it to be consistent in rising and falling markets. If you look at the historic alpha of my old fund over a long period of time, it was very high without lots of market risk.”
Mr Matthews remains very much ‘on message’ throughout the interview. This is understandable for a man who is running one of the most well-known products in the UK retail market and who has been on a fairly intense marketing ‘tour’.
When asked what attracted him to Schroders, the manager says simply: “It was a big challenge.”
“This is a flagship fund with a high-profile history,” he adds. “As a manager you want to test your ability.”
He also highlights the simplified nature of his role when compared to working at Jupiter. No longer does Mr Matthews run pension funds and smaller mandates alongside his main fund – it’s the UK Alpha Plus fund and nothing else.
While some might argue the UK equities team now in place at Schroders is too large – it includes Mr Matthews and Julie Dean, alongside equity income managers Matt Hudson, Nick Kirrage and Ian Murphy, not to mention Paul Marriage, Andy Brough and Alex Breese – unsurprisingly none of said managers seem to worry about competing over similar territory.
“The team that Schroders is building up is very, very good,” says Mr Matthews.
With that line-up in place and encouraging short-term performance – six of the company’s nine UK equity products are in the top or second quartile of their respective sectors in the 12 months to May 30 – it is difficult to argue with him.
Philip Matthews’ CV
2013 – present
Schroders: Manager, Schroder UK Alpha Plus fund
2013
Manager, Jupiter UK Alpha fund
2011/13
Co-manager, Jupiter Income fund
2006/13
Manager, Jupiter Growth & Income fund
2002/06
Manager, Jupiter UK Smaller Companies fund
1999-2013
Jupiter Asset Management
1998-1999
Chesterton plc
