Cherry picking strong performers

HL Multi-Manager Special Situations Trust is top of the tables after seeing results from investing in small- and mid-caps. The portfolio focuses on stockpicking managers incentivised to perform.

A strong bounce from riskier assets has propelled HL Multi-Manager Special Situations Trust back towards the top of the performance tables this year. After a tough final quarter in 2008, Lee Gardhouse, lead manager of Hargreaves Lansdown’s funds of funds, says the portfolio’s small- and mid-cap focus has boosted returns.

The £330m unit trust, which was launched as HL Boutique Opportunities Trust in 2001, remains true to its original remit, he adds, by investing in smaller fund management groups which reward strong performance. Because of this, the fund tends to target stockpicking managers operating at the lower end of the cap scale.

In April, Gardhouse took stakes in Rensburg UK Managers’ Focus Trust, which contains small and mid cap portions, and Findlay Park American Smaller Companies. The $3.5 billion (£2.1 billion) Findlay Park Oeic is run by a six-strong team of managers which includes James Findlay and Charles Park, the firm’s co-founders.

“Findlay Park fits perfectly with what Special Situations was set up to do,” explains Gardhouse. “The guys who set up the business run the fund and we invest in managers who are incentivised to perform.” Hargreaves Lansdown was only allowed to add a 5% position in the fund after lengthy negotiations with Findlay Park, he adds.

More recently, Gardhouse introduced a small weighting in Nevsky Capital’s Dublin-domiciled Global Emerging Markets fund in July. Nevsky, which was created by former members of Thames River Capital’s emerging markets team in 2007, also runs the Eastern European fund – a holding in Special Situations since 2001.

Gardhouse has also maintained a weighting in Old Mutual Asset Managers’s UK Select Smaller Companies Oeic for the past eight years. The Old Mutual portfolio forms Special Situations’s biggest single holding when exposure to the onshore and offshore versions of the fund is considered.

Funds are generally bought as long-term investments and Gardhouse’s last significant sell was New Star European Growth in December 2008, during uncertainty over the future of its manager, Richard Pease. Henderson, which completed its acquisition of New Star in April, confirmed that Pease would join the combined firm in March.

As Fund Strategy’s website reported in May, Pease will run Henderson New Star’s first product launch – New Star European Special Situations. “We will take a look it,” says Gardhouse. “I am not sure if Henderson fits in with boutique culture, but Richard is a good manager with a small amount of money – the fund could be quite nimble.”

Because of its bottom-up focus on manager skill, Special Situations is geographically unconstrained, within the rules of the Global Growth sector. The portfolio had a 51.55% weighting to Britain at the end of August, compared with just 18.4% for the peer group, according to Financial Express.