There are very few managers who can boast Jamie Seaton’s track record over the medium term.
According to FE Analytics, the FE Alpha Manager’s GVQ UK Focus fund has been a top decile performer in the highly competitive IA UK All Companies sector since he took charge in April 2009 with returns of 213.20 per cent, meaning it has beaten the FTSE All Share by more than two times.
Performance of fund versus sector and index under Seaton
Source: FE Analytics
Since he has been at the helm, the five-crown rated fund has beaten the peer group average in every calendar year, which includes a variety of conditions such as the strongly rising markets of 2009 and 2013, falling years like 2011 and sideways but highly volatile years such as 2014 and 2015.
The fund has also beaten the FTSE All Share in six of those years, as in 2011 it fell 2 percentage points more than index.
Nevertheless, that means that GVQ UK Focus is one of only five funds to have been second or first quartile in the 230-strong sector in each calendar year between 2009 and 2015: the others being F&C UK Mid Cap, Neptune UK Mid Cap, CF Lindsell Train UK Equity and Aviva Investors UK Equity Manager of Manager 1.
Performance of fund versus sector and index
Source: FE Analytics
As a result, it will come as little surprise that the fund sits in the sector’s top quartile for maximum drawdown and annualised volatility under Seaton and top decile for its alpha generation, information ratio and risk-adjusted returns (as measured by its Sharpe ratio).
Nevertheless, with assets of £335m (which ranks it 98 out of 269 in terms of AUM in the sector) GVQ UK Focus’ returns may well have gone under the radar of many UK investors. 
Speaking to FE Trustnet earlier this week, Seaton says his strategy is certainly different to most of his peers within the IA UK All Companies space.
For example, the manager uses a private equity style valuation method on every company he owns.
His “quadrant” approach looks at stocks according to four different metrics: ‘growth’, or growth in operating cashflow; ‘value’, or enterprise value to operating cash less maintenance capital expenditure; ‘corporate activity’, which focuses on recent relevant trade; and private equity transaction multiples and ‘de-gearing’, which assesses the transfer of value from debt to equity holders over an investment period.
Therefore, the manager doesn’t concentrate on well-used metrics such as earnings per share for growth or the price to earnings ratio for value. It also means he tend to avoid highly-cyclical stocks such as banks and mining.
“Basically the quadrant takes each segment in turn, rather than managers who are focused on growth or value or a composite of the two. We look to identify those four drivers within the investments we make,” Seaton (pictured) said.
Seaton urges investors to realise that GVQ UK Focus – which will only ever hold 35 or fewer stocks – isn’t a smaller companies portfolio either.
While he is certainly overweight the likes of the FTSE Small Cap and FTSE 250 indices relative to the FTSE All Share (though he would never hold more than a third of the fund in small-caps), he describes the portfolio as a genuinely multi-cap offering.
“As a rule of thumb, we roughly use a third, a third, a third for large, mid and small-caps and we can achieve a nice balance between the four drivers I have mentioned. We try and run this fund in the true spirit of the IA UK All Companies sector.”
Seaton added: “The weighted average market cap in the fund is just over £6bn today so it is a liquid strategy.”
He says it is this blended investment approach, along with exposure to all parts of the UK market-cap spectrum, which has driven his consistent outperformance over his tenure.
“If you look over the nearly seven years now, 2009, 2010, 2011 and really through to the middle of 2012 was all about growth and de-gearing for the fund in pretty much equal measure,” Seaton said.
“Like the market, there was effectively no re-rating of the underlying holdings. Through the middle of 2012 to the end of 2013, you still had ongoing de-gearing and growth but re-rating became a more important driver.”
“In 2014, though, it was much more about M&A or aborted M&A as the fund’s largest position prior to the announcement of the deal was Shire and so benefitted. Last year, however, was much more about stock specifics.”
Performance of fund versus sector and indices in 2015
Source: FE Analytics
“We benefitted, unquestionably, through having no exposure commodities and resources but that was an active decision on our part as we typically don’t invest in purely cyclical businesses.”
While not a household name, Seaton’s fund is gaining popularity within parts of the industry.
For example, GVQ UK Focus is highly-rated by the FE Research team and, as such, has earned a spot on the FE Invest Approved list.
Thomas McMahon, fund analyst at FE Research, says it is an interesting option for any investor who wants exposure to the UK equity market and can be used as either a satellite holding or part of a core ‘best ideas’ portfolio.
“The main thing to remember is that the fund is very active, so how you might use it depends on how you are constructing your portfolio,” McMahon said.
“Many people want either a tracker or a fund that is close to the broad index exposures as their core holding and then add more active strategies to that to try and generate a bit of alpha. For that sort of investor GVQ UK Focus could make a good satellite holding.”
“However, if you are the sort of investor who decides on an asset allocation and then picks the fund they think has the best chance to generate alpha in each area, this could be a good candidate for UK equity exposure.”
McMahon continued: “The fund has a distinctive approach to stock-picking and only holds around 20 stocks, so behaves very unlike the market, and has an excellent track record of generating alpha so far. This isn’t a strategy that just relies on smaller companies to outperform either, as over his tenure Seaton has generated alpha from his large as well as mid and small-cap exposure.”
McMahon’s views are echoed by Rob Morgan, pensions and investment analyst at Charles Stanley Direct, who also uses the fund.
“We like the concentrated stock-picking approach which gives possibility of significant alpha generation. It is still small, so nice and nimble. We rate the team as stockpickers and like their outlook taking a private equity look at things,” Morgan said.
“I think it would sit in a portfolio as a general UK option as it’s all cap or alongside an income type fund.”
While the fund’s recent performance has been strong, Seaton is the first to admit that GVQ UK Focus will go through tougher relative periods as taking an all-cap, concentrated approach which avoids the likes of banks, mining and oil has been very well suited to recent market conditions.
He says, for example, that the fund – like many of his peers – would struggle relative to the wider index in a very narrow market rally led by the largest constituents of the FTSE All Share or if small and mid-caps were to severely underperform against large-caps.
McMahon agrees that Seaton’s highly active approach will undoubtedly lead to periods of relative underperformance.
“It is worth bearing in mind, though, that the very active approach means while the fund has consistently outperformed over recent years, this may not always be the case, and such active approaches can underperform for periods of time,” he said.
“Seaton is unlikely to change his portfolio thanks to macroeconomic events or poor sentiment towards his stocks, which could lead to a period of underperformance as the longer-term story plays out.”
Performance of fund and stock versus sector and index over six months
Source: FE Analytics
“For example, over the past six months Aberdeen (his largest position at 9.6 per cent) has been hurt by negative sentiment towards emerging markets which in turn has affected Seaton’s relative performance, but the manager has remained a buyer and has high conviction in the company over the longer term.”
Investors who are interested in the fund should bear in mind that Seaton takes capacity constraints seriously and therefore sees the AUM limit for the fund, in the current market conditions, at £450m so that his investment approach isn’t affected by size.
GVQ UK Focus has a clean ongoing charges figure (OCF) of 0.97 per cent and also yields 2.41 per cent.
