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Analysts’ concerns grow over Buffettology despite outstanding performance

16 November 2021

The fund has been the top-performer in the IA UK All Companies sector, but its rapid growth in assets under management is an issue for some.

By Jonathan Jones,

Editor, Trustnet

FE fundinfo Alpha Manager Keith Ashworth-Lord’s SDL UK Buffettology fund has been a jewel in many investors’ portfolio over the past decade, but some experts have warned that it could struggle to match its prior successes.

Fund shop interactive investor, which currently recommends Buffettology on its ‘Super 60’ best-buy list, today placed the portfolio “under review”.

Dzmitry Lipski, head of funds research at interactive investor, said the firm had “concerns around resource and size of assets”.

The increase in the size of SDL UK Buffettology is also a concern. When initially placed on interactive investor’s buy list in January 2019, it had assets of around £600m but today it stands at more than £1.7bn.

“In our formal review we will investigate if the size of the fund hinders Ashworth-Lord from having meaningful exposure to small-cap and micro-cap shares, which were a prominent part of the fund when it was placed on Super 60,” said Lipski.

Rob Morgan, chief analyst at Charles Stanley Direct, noted that the fund had previously benefited from investing in smaller companies, which, due to its size, it is no longer able to do.

Indeed, Ashworth-Lord has previously told Trustnet that he was forced to sell some of the fund’s smallest holdings as he owned near 20% of the share register, while they minimally impacted the portfolio.

Morgan said: “The opportunity set might be more limited, and this might have an impact on the extent of outperformance that can be added. Recent relative performance has been less sparkling, albeit that has much to do with the fund’s style being less in favour as value stocks have rallied.”

Over the past year, the Buffettology fund has returned a bottom-quartile 17% while the average UK peer has made 24%. However over three, five and 10 years it has been a top-quartile performer.

Kamal Warraich, investment analyst at Canaccord Genuity Wealth Management, said he rated Ashworth-Lord and his approach to investing. “It’s a tried and tested process that clearly works,” he said.

Assets under management of fund over 3yrs


Source: FE Analytics

However, Warraich noted that the “incredible growth in assets” over the past few years had created a capacity issue, particularly in relation to its smaller companies weighting.

Ashworth-Lord said the concerns about access to small and mid-cap companies was a “red herring”, pointing out that over the past three years the fund has taken new positions in a company in the FTSE 100, three in the FTSE 250, two that are small cap, two quoted on AIM and one American business.

"We are continuing to fish the wide pond and have no concerns that size has yet impacted investment opportunities. Recent performance has been constrained solely by the ‘dash for trash’ with quality companies not the flavour of the month. As Abraham Lincoln said, ‘this too shall pass’,” he added.

Furthermore, interactive investor expressed concerns that the fund is overly reliant on Ashworth-Lord.

“In regard to resource we have concerns over key person risk as Keith Ashworth-Lord is the sole manager of the fund, plus in June, he took on the responsibility of another fund - Free Spirit - following the departure of Andrew Vaughan,” Lipski said.

“At present, there is no clear succession plan in place, as there is no named deputy manager on CFP SDL UK Buffettology fund.”

Sanford DeLand Asset Management, however, noted that last month it hired two new investment analysts to bolster the fund’s “team approach”, which includes a number of analysts led by Ashworth-Lord.

The manager added: “Key man risk in Sanford DeLand is materially lower today with a team of four like-minded investment professionals than it was even two years ago.

“This reflects a key priority over this time to successfully build out the SDL business and it has been a great success.”

Concerns around the fund come after a decade of outstanding performance. Last week, Trustnet ran a study showing that small-cap funds were the clear winner when investing in the domestic market, with nine of the top 10 funds of the past decade in the IA UK Smaller Companies sector.

The only exception was SDL UK Buffettology, which has been the eighth-best portfolio over 10 years out of the 309 funds in the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies sectors.

Although it does invest in smaller companies, the fund buys stocks from across the market, making it a true all-cap portfolio.

Total return of fund vs sector and FTSE All Share index over 10yrs


Source: FE Analytics

The portfolio buys quality businesses, with a keen eye on company fundamentals, a firm’s position in its chosen market and how it treats its customers, suppliers and staff to the exclusion of all else.

“So no attention to market gossip, macroeconomics, direction of stock markets or what will happen to things that are completely out of my control,” Ashworth-Lord said.

The manager then looks for an entry level that suggests long-term value above the current stock market price, before holding the companies for a long time.

“Once invested, I intend to hold the ownership interest forever and will only sell if the investment thesis changes in a fundamental way or I have made an error getting into something that proves not to be what I thought it was,” he said.

Top stocks in the portfolio over the past decade include Liontrust Asset Management, first bought in April 2011 at 70p. It has made 31 times the fund’s initial investment.

Games Workshop, the figurine company, has made 25 times since the manager first invested in April 2011 at 373p, while package holiday company Jet2 has made 15 times his investment since purchasing it in March 2012.

“That’s what has worked over the past 10 years. As regards the next 10, I firmly believe that investments in similar quality companies with an enduring franchise, pricing power and a long slope ahead down which to roll their snowball will benefit long-term investors more than looking at ‘value’ in isolation or the latest hot theme,” said Ashworth-Lord.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.