FE abandons Argonaut fund amid 'red flags'

FE abandons Argonaut fund amid 'red flags'

A rebound in performance for Argonaut manager Barry Norris has not been enough to save the manager's European Alpha fund from being taken off FE's approved list of portfolios, after the ratings agency pointed to several "red flags".


FE said it could no longer support the inclusion of the £301m European Alpha fund in its model portfolios, or on its list of ‘approved funds’ – a shortlist of top funds which is assessed every six months.

It follows a period of poor returns, the fund having underperformed its MSCI Europe ex UK benchmark over three years, due to severe underperformance last year. Performance has improved this summer, but FE said the change reflected wider concerns.

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Argonaut has come under increasing scrutiny after enduring a 2016 to forget. Its flagship Absolute Return fund lost investors 26 per cent last year while former European income manager Olly Russ left with two funds and £300m in assets to join Liontrust.

Mr Norris (pictured) has turned around performance in the Absolute Return fund – returning 7 per cent year-to-date – and launched an replacement income vehicle for fellow manager Greg Bennett.

But FE research manager Charles Younes said: “We have liked the fund for two or three years as it takes a different approach focusing on earnings momentum. But for the last 18 months the process has failed to work and we have decided to stay away.”

He added: “The asset management company has struggled. It has lost a lot of money and got rid of people, and tried launching new strategies to offset the outflows. There are red flags."

Argonaut said in response that FE's holdings of its funds amounted to less than 0.1 per cent of assets under management. Head of UK and Ireland sales Richard Maclure added: "As recently as 2013, FE inducted Barry Norris into their fund manager 'Hall of Fame' in “recognition of consistent out-performance” over ten years, so we are naturally disappointed in their more recent analysis."

Argonaut was not the only fund group to come under criticism in the latest FE reshuffle. Legg Mason’s Clearbridge US Large Cap Growth fund was also removed from its list – with Mr Younes describing it as offering “little more than a passive fund”.

The $704m (£537m) vehicle was reviewed six months ago but kept in due to its growth bias, FE’s desire for tech exposure, and lack of a better alternative, Mr Younes said.

Following a wider review of the US equity sector, the team has now opted for Baillie Gifford’s £628m American fund run by Gary Robinson, Helen Xiong and Tom Slater.

“We always look at tracking error, but six months ago we needed a fund with a strong growth approach. It you look at the other funds we have in the area – Baillie Gifford is the now one with the highest tracking error. Legg Mason was fine in the short term but over the long term we prefer the American fund," he added.