Baillie Gifford Japanese, First State Asia Pacific and Veritas Asian are among some of the boutique funds that Downing’s Neil Shillito backed when his fund first launched and which he still holds in high regard now. 
The manager (pictured) launched his SGWM Managed fund 10 years ago and, at the end of 2015, it was acquired by Downing and renamed Downing Diversified Global Managers.
Now available to the wider intermediary market, the multi-manager vehicle aims to hold boutique funds which are aligned with investors’ interests and will remain true to their investment process over the long term.
In light of the fund’s anniversary, Shillito discussed four funds which he either became a very early investor in or first bought at SGWM Managed’s inception, and which he still believes are still attractive for investors.
Baillie Gifford Japanese
First up is Sarah Whitley’s Baillie Gifford Japanese fund, which Shillito purchased in September 2007. The four FE Crown-rated fund, which is now £1.9bn in size, was launched in 1987 and aims to invest in global leading businesses trading on hefty discounts relative to peers.
It has an active share – which measures the difference between a portfolio and its benchmark – of 87 per cent and a low annual turnover of just 9 per cent. Examples of its largest constituents include telecommunications company SoftBank and robotics firm Yaskawa Electric Corporation.
Over the last decade, it has returned 182.85 per cent compared to its average peer and benchmark’s respective returns of 90.54 and 97.49 per cent. It has done so with a top-quartile maximum drawdown – which measures the most money lost if bought and sold at the worst possible times – of 18.48 per cent, a top-quartile Sharpe ratio – which measures risk-adjusted returns and a third-quartile annualised volatility.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Shillito no longer holds the fund simply because it doesn’t fit with his vehicle’s current pairing strategies. That said, he still likes the fund and deems it to be a strong choice for investors.
He said: “Baillie Gifford might not be perceived as a ‘boutique’ but they certainly exhibit boutique characteristics.
“Their managers are talented, disciplined (they stick to their investment style) and they are financially aligned with their investors (they invest meaningful amounts of their own money in their funds) and very often they are partners in Baillie Gifford.
“The fund has been consistently one of the better performers in the Japan sector.”
Investors should note, however, that on Monday, Whitley announced she will step down from managing the fund next year after 37 years at the firm.
Baillie Gifford Japanese has a clean ongoing charges figure (OCF) of 0.67 per cent.
MI Downing UK Micro-Cap Growth
Having first put money into the now-£32m MI Downing Micro-Cap Growth in 2012, Shillito said: “I was a very early-stage and substantial investor in this fund.
“Judith MacKenzie is now an established, leading fund manager in the micro-cap sector.”
The fund’s manager since 2011, Mackenzie adopts a private equity-style approach to portfolio construction in a bid to maximise returns and liquidity. She also has a value bias and looks to exploit the market’s inefficient valuation of micro-cap companies.
This process results in a high-conviction portfolio of between 25 and 30 companies, with its largest current individual holdings including Real Good Food, engineering services firm Redhall Group and ‘drinks and impulse goods’ distributor Conviviality.
Over MacKenzie’s tenure, the fund has outperformed its average peer by 18.21 percentage points with a total return of 138.44 per cent, and has done so with a top-quartile maximum drawdown of 12.2 per cent, a top-quartile annualised volatility and a second-quartile Sharpe ratio.
Performance of fund vs sector and benchmark under Mackenzie
Source: FE Analytics
New investors should note that the vehicle is currently soft-closed in order to maintain its agility, but existing investors are still able to contribute.
MI Downing UK Micro-Cap Growth has a clean OCF of 1.33 per cent.
Stewart Investors Asia Pacific
Shillito first bought into Stewart Investors Asia Pacific – then named First State Asia Pacific – in September 2007.
He said its former manager Angus Tulloch – who announced his departure from the firm at the start of this year – was “arguably one of the best managers of his generation and certainly in the Asia region, producing excellent, consistent risk-adjusted returns”.
However, Shillito continues to hold the fund now it is under the tenure of Ashish Swarup – who has co-managed the fund since 2015 – and Tom Allen, who began co-managing the portfolio in July this year.
The four crown-rated fund aims to provide long-term returns through a relatively concentrated portfolio, which currently consists of 60 holdings. Examples of its largest individual constituents include Taiwanese nutritional supplement manufacturer Standard Foods Corporation, Australian miner Newcrest Mining and Oversea-Chinese Banking Corporation Limited.
Over 10 years, Stewart Investors Asia Pacific has returned 193.31 per cent compared to its average peer and benchmark’s respective returns of 93.52 and 100.12 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
It has done so with a top-quartile maximum drawdown, Sharpe ratio and annualised volatility.
The fund has a clean OCF of 1.08 per cent.
Veritas Asian
The final fund on Shillito’s list is Veritas Asian, which has five FE crowns and is headed up by FE Alpha Manager Ezra Sun.
Again, while Shillito no longer holds the fund because it doesn’t fit with his pairing strategy, he invested when Veritas as a company launched in 2007 and still believes it is an attractively-managed fund.
Sun aims to provide long-term growth through a concentrated portfolio of 40 stocks, which are chosen through a combination of top-down and bottom-up stock selection. Its largest holdings include Australian gambling machine manufacturer Aristocrat Leisure, Alibaba Group and US luggage manufacturer Samsonite.
Over the last decade, the £571m fund has outperformed its sector average and benchmark by 72.59 and 65.99 percentage points with a total return of 166.11 per cent. In terms of its risk metrics, it has done so with a top-quartile maximum drawdown, maximum drawdown and annualised volatility.
Veritas Asian has a clean OCF of 0.75 per cent.