CFP Sanford DeLand UK Buffettology has been one of the most successful fund launches of recent years. Keith Ashworth-Lord’s Buffettology portfolio, which aims to follow the ‘Business Perspective Investing’ strategy championed by Ben Graham and Warren Buffett, has beaten its IA UK All Companies sector in every calendar year since launch in March 2011, making 225.55 per cent over this time compared with 81.7 per cent from its average peer.
Buffettology is not the only fund run by Sanford DeLand, however. CFP Sanford DeLand Free Spirit was launched to little fanfare at the start of 2017 and is still just £15.6m in size, despite the fact manager Rosemary Banyard is one of the most respected names in the small- and mid-cap space: her former fund, Schroder UK Smaller Companies, made 594.14 during her tenure from December 1998 to March 2016, compared with gains of 463.81 per cent from the IA UK Smaller Companies sector and 237.8 per cent from its FTSE Small Cap (ex IT) benchmark.
Performance of fund vs sector and index over manager tenure
Source: FE Analytics
After leaving Schroders, Banyard met Ashworth-Lord for a coffee and found they had much in common in terms of their view on “moats” – barriers to entry that allow businesses to maintain a competitive advantage over their peers.
However, one thing she realised she was unaware of until she began working at Sanford DeLand was the number of financial metrics you can screen for that confirm the presence of this moat
.
“Some of them I knew already, such as high profit margins, but the one I hadn’t really thought about was return on equity,” she explained.
“The average in the UK is about 14 per cent, which is relatively good actually, but if you can find businesses that are above that, the chances are that is because they have some sort of moat.
“I took Keith’s models and employed things like looking at the return on equity trend and other things he looks at [these include strong balance sheets and cash flows, as well as evidence of steady growth].”
She added: “So he kind of brought to it some financial rigour, rather than just looking at a company and thinking ‘yeah, I get that: that one’s got these barriers’.”
So, if they both use the same style of investing, what is the difference between the two funds?
While both have the freedom to invest across the FTSE All Share, Free Spirit focuses further down the market cap scale – it has just 11.6 per cent in large caps, compared with 45.1 per cent for Buffettology.
For Banyard, however, what separates the two funds is the managers’ different knowledge bases or circles of competence, as a result of their very different careers.
“For example, Keith lives in Rochdale and has worked in Manchester and if you look at his portfolio, there are quite a significant number of investments that are based in the North West,” she said.
“Obviously he is comfortable with them because he has known these businesses for a long time, so things like [flooring products manufacturer] James Halstead.”
Banyard doesn’t have a particular geographical specialism, which is partly because she knows more companies than Ashworth-Lord as a result of “sitting in a big fund house for a long time, where they all come through the door”.
In terms of sectors though, the manager said her colleague has been very successful in areas such as leisure roll-outs – one example of this would be Domino’s Pizza, which Ashworth-Lord has now sold, but which he made “a lot of money out of” – while she is more comfortable with software.
“Three of my top-five performers since launch have been software companies, so we have different comfort zones and that is really the main difference – philosophically we are pretty similar,” she said.
Going back to the economic moat, these fall into one of three categories: ‘human capital’, which refers to the skills of the workforce; companies that “own a piece of the customer’s mind”; and patented or non-patented proprietary technology, meaning the company has something that everybody wants but which no one else is offering.
Because Free Spirit operates further down the market cap scale than Buffettology, more of Banyard’s holdings tend to be from the final group, operating in narrowly defined niches.
One example of this is Avon Rubber, which has two businesses – making protective masks such as gas masks, and making specialist parts for automated cow-milking machines, where it controls 60 per cent of the world market.
When Banyard visited the company in Italy last week, she discovered it has found a way of monitoring the cattle that is every bit as niche as the market it operates in – making them wear Fitbits.
“It is like a bicycle clip with a Velcro thing for the leg with a monitor on it,” she explained. “So, they made us put one on and each one had a number for a cow in the lab. And as you approached the gates, one opened for you if you needed the vet, and then a different gate opened for the next 'cow' if it needed to eat more.
“They worked out what gate it needed by monitoring things like feeding – how long it spent in the feeding area, for example.
“They can also monitor if they are lame, but the big one is they can monitor when they jump up on another cow, which means they are ready for inseminating.”
CFP Sanford DeLand Free Spirit has made 28.85 per cent since launch, compared with 14.5 per cent from the IA UK All Companies sector and 8.02 per cent from its CPI +2% benchmark.
Performance of fund vs sector and index since launch
Source: FE Analytics
It has ongoing charges of 1.45 per cent.