A small boutique with big ideas

Rensburg Fund Management is a relatively small company with a UK-centric investment focus, but this has not significantly harmed its performance, as James Teasdale discovers.

Rensburg Fund Management is the asset management subsidiary of Rensburg Sheppards, the seventh largest private client wealth manager in Britain with 10.3bn in assets under management. Based in Leeds, the fund management company is responsible for managing seven UK-investing unit trusts and segregated portfolios totalling 719m. Funds under management have more than doubled over the past five years.

Leeds-based Rensburg Fund Management saw its unit trusts’ assets under management increase from 461m to 665m in the 12 months to June 30. Its range of funds has an impressive track record, with five out of seven ranked in the top half of their respective sectors over one year. Four of the six funds with a three-year track record have also bettered median performance.

The asset management company is part of the recently formed Rensburg Sheppards group, following Rensburg’s takeover of Carr Sheppards Crosthwaite in May.

Rensburg Fund Management specialises in investing in British assets with a fund range comprising six UK equity funds and a corporate bond portfolio. The fund management team is small, with all fund managers sitting at the same desk. The whole team comprises 14 people, including fund managers and sales and marketing staff.

Joint managing director Alex Brotherston says: “Investment decisions can be made quickly. The fund managers are a nimble team and can get in and out of stocks easily. They know each other well and work well together.”

Fund managers are assisted by a trainee analyst and rely on a number of broking houses to provide research into stocks. Brotherston explains: “Our main research and ideas come from brokers, but we do our own research on the back of this to verify what they are telling us.”

Five or six small or mid-sized companies will visit Rensburg’s offices each week, he says: “Our spending power has improved and more and more people want to come to see us. It is important that we get a flow of companies coming to meet us and we also get out to visit businesses.”

Brotherston says: “We set our stall out to be a boutique investment company and have a stable of funds that we think covers the whole of the UK market. If the UK markets perform then hopefully we will meet investors’ needs.”

Rensburg’s investment philosophy is based on long-term strategies with short-term tactics used to achieve its aims. He explains: “Funds have a number of disciplines imposed both on a stock and sector level. Our key market is fund of funds managers and they want to understand portfolios’ investment processes. With our funds they know exactly what they are buying.

“We are never going to be the number one in the marketplace because of restrictions imposed, but we need to give fund of funds managers a process. There is no blurring around the edges – we define exactly what each fund is and stick to it.”

However, disagreements are common and arguments often heated, says Brotherston: “People will argue their point of view and this is how we get to making decisions. We will buy or sell on the back of these debates. If mistakes are made, managers will admit it and be prepared to sell out of stocks.”

As a result of the disciplines used in managing funds, Brotherston explains that those intermediaries who are focused on performance records were not buying into Rensburg’s funds: “We recognised this three or four years ago, which is why we launched the UK Select Growth fund.”

The Rensburg UK Select Growth fund is currently the best-selling portfolio, according to Brotherston. Managed by Mark Hall, the fund has grown rapidly over the past year, more than doubling in size from 78m to 190m.

The portfolio is also the best-performing of Rensburg’s unit trust range over three years, with a return of 74.4%. Hall has achieved top-decile performance over both one and three years within the UK All Companies sector. Brotherston describes the portfolio as a “go anywhere” multi-cap portfolio that is focused on absolute returns.

Hall says: “The focus is on absolute rather than relative returns. We have a disciplined approach, selling when price targets are hit or a stock is underperforming and looking to buy into companies where we see catalysts for change. It is mostly about discipline and not making silly mistakes. It is generally easier to add value in mid and small-caps.”

The fund has benefited from investing in Torex Retail, an information technology business supplying software to the retail sector. Hall says: “The share price has increased from 50p to 115p in the last nine months.”

Hall identified a number of catalysts that were in place for Torex to perform, reflecting his views on the company’s management team, the retail sector and competitive economic changes.

He says: “The economy is not in too bad a shape, but we have no strong macro view at the moment so bottom-up stockpicking is key. We are hunting around the small and mid-cap markets. Identifying one or two stories a month is all it takes.”

Given the wide mandate of the portfolio, Hall relies on colleagues Colin Morton and Stuart Sharp to help provide ideas in their areas of expertise.

The other two funds attracting significant assets include the 94m UK Blue Chip Growth and 233m UK Equity Income trusts, both managed by Morton. These have a significant large-cap bias and Brotherston attributes their current popularity to investors’ more defensive views on the markets.

Gartmore fund of funds manager Marcus Brookes says: “We invest in both the UK Select Growth and UK Equity Income funds and have done so for many years. Performance has been great and Hall has managed to keep producing strong returns. Colin Morton is a great large-cap manager. His attention to stock valuations and ability not to go with the latest fads provides for strong performance.”

Leigh Himsworth’s UK Mid Cap Growth fund is also seeing interest from certain intermediaries, adds Brotherston: “Some IFAs are looking for an alternative outside of the Old Mutual and Schroders funds in the mid-cap sector. We are competing neck-and-neck for new money.”

Sharp is Rensburg’s small-cap specialist, running both the UK Smaller Companies and UK Micro Cap Growth trusts. The Micro Cap fund is capped, but occasionally units become available and are quickly taken up, says Brotherston.

Darius McDermott, managing director of Chelsea Financial Services, says: “Hall and Sharp have very good reputations in the industry. Hall’s performance has put Rensburg on the map; his UK Select Growth fund had a storming first year. Rensburg has strong-performing funds in the UK All Companies sector.”

The worst-performing of the group’s funds over three years is John Anderson’s 22m Corporate Bond fund. Brotherston says: “We have never been a corporate bond house, but the portfolio is a nice safe haven for some of our internal clients. It is a very tight and cautious fund and will never be top-performing. Most of the fund’s assets are from internal clients’ money.”

While in the past it has focused its marketing on the higher end of the intermediary market, Brotherston says a number of changes are occurring: “We have a strong presence on all supermarkets and fund platforms are a growing force. We need a brand to attract more money, but our performance records are attracting money into funds on platforms.”

From a sales perspective joint managing director David Acfield focuses on marketing to the multi-manager market, while two sales staff cover the rest of the markets.

McDermott says: “They are a tidy firm based in Leeds, but they don’t seem to bring their fund managers down south. Rensburg has not pushed its managers to us. Even with good performance we are not comfortable recommending managers that we have not met. The numbers speak for themselves, but we can find alternatives.”

Brotherston explains: “We are not big enough to market aggressively to IFAs, but supermarkets are a channel that they are using more and more and this has led us to alter our sales approach. We want to deal with and support platforms, but the fund of funds guys are still vitally important to us.

“We have focused on the top end of the intermediary market, but are beginning to drift down the spectrum. We recognise that we don’t have a strong brand, but we do have a story to tell.”

Rensburg closed its Pan European fund in February 2005. Brotherston explains: “It wasn’t a market we were performing strongly in and our client base was not buying into the fund. We decided that the portfolio was not part of what we were trying to achieve given our UK focus.”

The fund was merged into the UK Blue Chip Growth trust, but no money was lost as a result, says Brotherston.

He identifies both strengths and weaknesses of the set-up at Rensburg: “Our UK-only focus can work to our advantage and disadvantage. If investors in the market are buying assets outside of Britain then we are stuck. But our expertise in UK equities is undoubtedly a strength.”

Being based in the north of England also has a number of pros and cons, explains Brotherston: “We are not influenced by City rumour and are not influenced by what everyone is saying. We like the lifestyle in Leeds and working here is a lifestyle choice.”

This means managers can concentrate on what they are best at and not get distracted, he says: “But not always being party to rumour can also be a disadvantage. For every strength there is a potential weakness, but in our opinion our strengths outweigh our weaknesses.”

“We are always on the lookout for people who are keen to move out of London, but there is not a cauldron of fund managers searching for a job in Leeds,” says Brotherston.

“If we were based in London the fund management team would have been snapped up a long time ago. Most fund management jobs are in London, but our managers don’t want to work there. We would probably have grown a lot quicker, but we don’t want that. We like our steady growth and, combined with being in a low-cost centre, we are very profitable.

“Our sustained growth is very pleasing to the group, but we need to manage ongoing growth. If we reach 2bn in the next year it will impact on performance, but it would be a nice problem to have. We have a tight but growing supporter base and could launch a new fund if assets were growing too fast.”

Gartmore’s Brookes says: “We are pleased they haven’t grown more quickly. If they were in London with these performance figures they would be managing significantly more money.”

Brotherston’s principal goals for the future are to expand Rensburg’s supporting client base and maintain performance records: “People are beginning to take notice of our performance pedigree,” he says.

“We are likely to adopt Ucits III regulations next year for our funds. This will open up a number of opportunities, which could include offering a long/short fund using derivatives. It has made us think about what we can offer to the market.”

“Most importantly, we want to enjoy what we are doing,” Brotherston concludes.

Brookes is certainly convinced: “They don’t suffer from being small and their fund managers have performed year after year in all conditions. We like Rensburg very much; it is probably the best UK equity boutique outside London. It is the sort of company we are paid to hunt down.”