Understanding a manager’s incentive to stay at a company and gauging their passion for their investment vehicle is one of the most important steps an investor can take when choosing a fund, according to Chris Metcalfe (pictured). 
The director at IBOSS says that boutique asset management firms often have more of an advantage from this perspective as, unlike larger asset management firms, the managers are likely to be major shareholders within the company.
Other qualities that IBOSS deem to be especially important are fund size (the team prefers smaller, more nimble investment vehicles), fund flow, the manager’s track record and the types of assets that they are likely to hold.
“With successful fund managers, there must be an awful lot of conversations and offers going on in the background which must be quite distracting and it’s only going to be the managers you hope you’re holding as they’re the ones that are going to be sought after,” Metcalfe explained.
“If they’re going to end their careers where they are then you’re going to take that distraction away and that’s what we’re looking for.”
“The bottom line is, with these managers in these situations, things can still go wrong but what we take comfort in is that if you hold quite a lot of these managers in your portfolio, it’s highly unlikely that things will go wrong simultaneously with 15 or 20 managers.”
In the below article, the director talks through three managers and management teams that he particularly likes and that believes will stay around for the long term:
Margaret Lawson – SVM
IBOSS has used FE Alpha Manager Margaret Lawson’s five crown-rated SVM UK Growth fund for several years and deems it to be one of its favourite funds within the UK space.
“It’s a small boutique, she’s the most passionate manager we’ve ever met,” Metcalfe said.
“The numbers themselves are fantastic but we like the fact it’s a small boutique and that she’s there with Colin, her husband.”
“We just can’t see her ever leaving and we don’t think she’s going to be distracted by somebody else coming in and trying to get her to go and work somewhere else, I just can’t see it happening.”
The manager founded SVM alongside husband Colin McLean since 1990.
The £147m SVM UK Growth fund aims to provide long-term growth through investing in stocks across the market cap spectrum. These are divided into three buckets: Core, which makes up 48.8 per cent of the portfolio, Tactical, which is a further 48 per cent of the fund and Alpha Kicker, which accounts for the remaining 6.1 per cent of the fund.
The Core bucket, which holds higher quality long-term stocks, includes the likes of Ryanair, Paddy Power Betfair and Irish investment firm DCC. The shorter term Tactical bucket, which is set to utilise broader market conditions, holds ITV, British American Tobacco and BT while the higher-risk Alpha Kicker bucket holds stocks such as Ladbrokes, Synthomer and commercial property firm Palace Capital.
In total, the fund currently consists of 28 holdings.
This concentrated ‘three bucket’ approach has stood the fund in good stead as it has provided a top-decile total return over one, three, five and 10 years, comfortably doubling its sector average and benchmark over the last decade.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Despite its strong long-term performance, it has a bottom quartile annualised volatile over three, five, seven and 10 years.
SVM UK Growth has a clean ongoing charges figure (OCF) of 1.08 per cent.
Jeremy Lang – Ardevora
“Jeremy Lang is ex-Liontrust, he’s a very big part of Ardevora. You can’t see him leaving and why would he, it’s his company,” Metcalfe said.
FE Alpha Manager Lang began managing money in 1986 when he joined James Capel Fund Managers. After five years there and a four-year sabbatical, he joined Liontrust in 1995 and went on to found Ardevora in 2010.
IBOSS holds Ardevora Global Equity, which has five FE crowns and is headed up by Lang, fellow FE Alpha Manager William Pattisson, Ben Fitchew and Gianluca Monaco.
The fund was launched in 2011 and, over this time frame, it has provided a total return of 78.55 per cent, outperforming its peer group composite and benchmark by 42.79 and 32.29 percentage points respectively.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
The £256m fund has a long/short mandate and aims for a long/short ratio of 150/50, therefore meaning that its long positions will account for 150 per cent of its net asset value and the short positions will account for 50 per cent.
The fund, which has 247 long and short positions in total, holds the likes of Amazon, US low-cost airline JetBlue Airways and Faroe Islands-based salmon farming company Bakkafrost in its long bucket. Some of its largest short positions include Walmart, William Hill and Adidas. These positions are mostly held in the form of derivatives.
When it comes to selecting these positions, the managers will adopt a top-down view that involves looking at market valuations and behaviour before investing.
Its ability to use both long and short positions means that the fund’s returns have been notably smooth – since launch, it has achieved a top-quartile annualised volatility, maximum drawdown (which measures the most potential money lost of bought and sold at the worst possible times) and Sharpe ratio (which measures risk-adjusted returns) since its launch.
Ardevora Global Equity has a clean OCF of 1.61 per cent.
TwentyFour Asset Management Team
“We like TwentyFour’s team-based approach and the fact they just run fixed income. If things go wrong, they’re not going to launch a Japanese Smaller Companies fund,” Metcalfe said.
“They are all experts, they hire very good people in and they’re very good on their communication – what they’re doing and why they’re doing it.”
“I think they’re probably the best in fixed income at communicating what they’re doing. With their team-based approach, if somebody did leave TwentyFour, the guys could cope with it.”
“In some cases, I think a team-based approach makes it quite difficult to see who’s managing the money, we always had that with Aberdeen because it was always difficult to find out when key people had left, but at TwentyFour it’s such a specific mandate – just bond funds.”
IBOSS currently holds the five crown-rated TwentyFour Dynamic Bond fund, which is £1.5bn in size and is able to invest in fixed income assets across the entire ratings spectrum.
The portfolio is relatively concentrated for a bond fund at 193 holdings and consists of assets from across the globe, although these are hedged back to sterling.
Since its launch in 2010, the fund has provided a total return of 43.07 per cent, outperforming its average peer by 9.55 percentage points.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
It is more volatile than its peers though, having provided a bottom-decile annualised volatility and maximum drawdown over the same time frame.
TwentyFour Dynamic Bond has a clean OCF of 0.8 per cent and yields 4.55 per cent.