This week the Fitzwilliam Multi-Manager fund celebrates its 10th birthday, which makes it one of the older funds in a market that has grown exponentially in the past few years. It is also top of the Balanced Managed sector (funds of funds only) over three years to June 27, with a return of 31.35%.Lead manager Sharon Segal attributes this to the fund’s focus on picking managers who do not hug benchmarks: “We are a balanced mandate but we take an active approach.” Segal and her team – which includes an equity analyst, a bond analyst and a strategist/economist – work for BDO Stoy Hayward Investment Management, a subsidiary of accountancy firm BDO Stoy Hayward. Most of the fund’s investors are internal clients who have been referred by their accountants, although, says Segal, “it is run and registered by Capita, so anyone can buy it through them if they want”. She adds that it has one of the lowest total expense ratios for a fund of funds, at 1.95%. With the firm’s other fund of funds, Fitzwilliam International Equity, the team starts with a top-down view from economist Shaun Port before deciding on asset allocation. But because Fitzwilliam Multi-Manager is aimed primarily at British investors seeking a balanced mandate, Segal says its approach is different. “We tend to start from the point that roughly 60% of the portfolio will be in British equities. Then we ask the strategist/economist if this is right: if it were felt that the UK was going to underperform, we would cut our percentage.” In fact the fund is currently 63% invested in British equities, with lesser positions in America, Europe, emerging markets and Japan, and just 5% in bonds. The fund’s 8% cash weighting is its third-largest position after British and European equities. “That is a bit of a bias as it’s normally more like 3-4%,” says Segal. “It is on the high side because we are unsure about the likely direction of markets – there seems to be a disengagement between economies and equity markets at present.” The team has a strict quantitative and qualitative approach to fund selection, beginning with a monthly quant screening of funds both held and not held in the portfolio. The qualitative analysis starts by looking at the investment house. Is it a boutique? Is it institutionalised? Is it multi-cap? Can the fund managers manage according to their convictions or are they benchmark-orientated? Then, says Segal, the team digs deeper, either through face-to-face meetings or conference calls with the managers.
“We won’t invest in a fund unless we have met the fund manager or spoken to them on the phone.”
There are currently 17 funds in the portfolio, which sets a maximum of 20 holdings. This means it will tend to have large positions in its underlying funds – indeed, the top five make up roughly half of the 79m portfolio. “We act on our own judgment but we like to get close to the fund manager, so that when they have bad times we can understand why,” says Segal. “We don’t want to sell out of a fund because of three months’ poor performance. We aim to be long-term investors, and a lot of our holdings go back five years or more. We will go through phases where we won’t be that great, but we choose fund managers who manage funds according to their convictions, and they go through those phases too.”
The biggest recent change to the fund was in June, when Segal sold her entire position in the Artemis UK Growth fund, managed by Adrian Paterson. She split the proceeds among three funds – two existing holdings, Artemis UK Smaller Companies and Framlington UK Monthly Income, and a new position in Rensburg UK Select Growth, managed by Mark Hall.
Artemis UK Growth was hit by the collapse in the share price of Regal Petroleum, prompted by news that a much-hyped oil well in Greece was uncommercial, as well as by problems in four or five other shares, says Segal.
“The fund’s performance fell off a cliff around May time,” she says. “We met with Adrian Paterson to understand what had gone wrong. The consequence of this all happening at once has meant that it will take him about a year (in his words) to regain performance. As we felt therefore that this fund was a ‘dead’ investment for the next year or so, we decided to switch out of it.” She adds, however, that the team still feels Paterson is a good fund manager and he will recoup performance.
The fund’s strict sell discipline is perhaps one of the factors that have underpinned its long track record of good performance. To mark its 10th anniversary the team has been studying returns from the few funds of funds that have a similarly long pedigree. Segal says: “The only one to compete with us on a performance basis is New Star Balanced (an ex-Edinburgh fund), which from our point of view we are pleased about: we are a small boutique and they have huge resources but we can still compete against them in performance terms.”