Shillito says he has recently bought the niche fund, which focuses on companies listed on the FTSE AIM, for his Individual Savings Account (ISA). He thinks that the micro cap area of the market will be successful over the coming years and likes Downing Active Management's contrarian approach.
"One of the major reasons I bought it is because I personally believe in the fund’s objective and I think the area that it invests in will do well in the long-run. It’s a very, very different fund to most, as it has a micro cap bias," he explained.
"The fund has a very concentrated portfolio and the management team runs it in a private equity mind-set – but they only concentrate on quality small cap businesses."
"Downing Active Management is not for all mainstream investors because it doesn't invest in mainstream markets."
The £5m PFS Downing Active Management fund was launched in September 2008 and over that time it has struggled compared with its peers.
According to FE Analytics, it has returned just 2.97 per cent since its inception – making it the third worst-performing portfolio in the IMA UK Smaller Companies sector over that time.
Despite the fund’s underperformance, Shillito believes the management team of Judith Mackenzie and William Barker will eventually come good.
"Mackenzie’s current form has been better," he said. "She only has a two-year track record managing funds, but she has been around the business for considerably longer than that."
Mackenzie has run the fund since February 2011 and was joined by Barker seven months later.
Under Mackenzie’s management, the fund has returned 18.13 per cent – meaning it ranks in the third quartile over that time.
The fund’s performance has picked up in recent months.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
Over one year it has returned 23.02 per cent while the IMA UK Smaller Companies sector has returned 18.40 per cent.
Downing Active Management has considerably outperformed its benchmark – the FTSE AIM Index – over 12 months. Despite the fund’s micro cap focus, it has a much lower annualised volatility than the sector and index over this time.
"It is a risky fund to invest in and investors may have to wait for a catalyst to generate high returns," Shillito continued.
"Mackenzie looks for companies that have a strong position in an area of the market so she expects them to be bought out by the big boys – or companies that she believes are unduly undervalued."
"These catalysts for change may take some time but I am willing to live with that. The management team looks to target a 15 per cent per annum return."
"I have a very long-term view for this investment and I don’t think it would be sensible to invest in the fund if you weren’t looking to hold it for at least 24 months," he finished.
Downing Active Management has a concentrated portfolio of 25 holdings.
It typically invests in companies that have a market capitalisation of between £20m and £150m.
Its two largest individual holdings are pawnbrokers H&T Group and airline company Dart Group – which make up 7.86 per cent and 7.38 per cent of AUM, respectively.
Downing Active Management requires a minimum investment of £1,000 and has a total expense ratio (TER) of 2.47 per cent.