Lyttleton Dropped from BlackRock’s Core UK Fund (Article by Portfolio Adviser on 21.02.2012)

21 Feb

BlackRock's Mark LyttletonBlackRock’s Mark Lyttleton

Mark Lyttleton is to stand down as the long-time manager of the BlackRock UK Fund, culminating what has been a tough few years for Lyttleton and his investment management reputation.

The change comes as BlackRock tries to reposition the fund as more of a core UK fund, with Nick Little stepping up as sole manager from 1 March.

He was initially appointed co-manager of the fund back in September and has managed core UK equity portfolios for institutional clients of BlackRock for the past seven years.

Tony Stenning, head of UK retail at BlackRock, said: “Nick will enhance the core strategy of the UK Fund as he has a long history of managing this type of portfolio.”

He added that the process of bedding in the joint management structure had happened more smoothly than BlackRock could have hoped for, allowing for this subsequent transition to Little as sole manager, although he stressed this was not the intention from the start. 

Since the second half of 2004 Little’s composite figures show he has outperformed the FTSE All Share Index in each discrete year across multiple mandates. Over three years to 31 December he has posted returns of 14.9%, compared to 12.5% from the FTSE All Share and over five years his track record shows returns pf 4.1% per annum, versus 1% from the index.

Little favours a reduction of the portfolio’s exposure to smaller, less liquid stocks which have traditionally served Lyttleton well, but have hurt his performance in recent times and are considered too alpha for a core product.

Poor performance

Launched in 1993, and managed by Lyttleton for over 12 years, the £448m BlackRock UK Fund has underperformed the IMA UK All Companies Sector over six months, one year, three years and five years and has ranked in the third or fourth quartile over all those timeframes. Its annualised performance over five years is -1.6% compared to an average of -0.2% from its peers.

The performance of the fund was really hurt in the 12 months to 31 December 2008 when it posted negative returns of 36.7%, compared to -29.93% from the FTSE All Share. In 2009 and 2010 performance picked up again, but last year the fund was down 10.2%, versus -3.46% from the benchmark.

BlackRock said Little’s original appointment as co-manager followed similar existing co-manager structures, such as the Nick Osborne and Mark Lyttleton combination at the helm of the UK Absolute Alpha Fund and Nick McLeod-Clarke and Adam Avigdori’s co-running of the UK Income Fund.

But there are those who questioned the rationale and wondered if it signalled Lyttleton’s fall from grace.

Early signs

At the time, Adrian Lowcock, senior investment adviser at Bestinvest, said: “Historically Lyttleton has been a very popular manager in the UK core equity fund space, so this is a big step change.

“In our view it shows Mark needs some support in managing money and running the funds, performance has been very disappointing and in such a competitive area we want stronger performance.”

Bestinvest had recently downgraded Lyttleton’s UK Dynamic Fund, while OBSR downgraded the UK Fund at around the same time, citing “a track record undermined by a very weak 2008” and “weaker stock selection than anticipated”.

The earliest signs Lyttleton’s time as most favoured manager was running out came in June last year, however, when BlackRock opted to wind down the closed-end Absolute Return Strategies fund of hedge funds which mirrored Lyttleton’s open-ended proposition – the UK Absolute Alpha Fund – because of a persistently wide discount to NAV. The fund was £130m in size at the time.

Flagship fund

Stenning said: “There will ne no change to Mark’s other responsibilities and he will retain his positions on the UK Absolute Alpha Fund and the UK Dynamic Fund, both of which have exceptional long-term track records. This will allow him to focus on those higher alpha strategies. It is very important that within the team we manage our resources sensibly. These are three key funds for us and it’s important to get it right.”

The UK Absolute Alpha Fund was one of the original funds in the absolute return space, launched in 2005, and had very strong performance in its first few years, with Lyttleton at the helm. In 2008 Nick Osborne was added as co-manager, although he had worked with Lyttleton since launch.

To 31 December 2007 the fund returned 9.8%, it then faltered in 2008 with a 1.5% return, which was brought back up to 7.9% in 2009.

Of late, the flagship fund has failed Lyttleton again though, and he was forced last month to write a letter to investors explaining its poor performance in 2011, which he admitted “with no shortage of contrition” was due to “picking the wrong shares”.

Up to £2.8bn AUM by the end of 2009, the fund ended 2011 at £1.22bn and in the year to 31 December 2011 it returned -6.8%, although it has an annualised return over five years of 2.9%. 

BlackRock said to the best of its knowledge Mark Lyttleton will not be departing the firm in the near future, stating there is “nothing Machiavellian about this move”.

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