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Shillito celebrates 10 years at the helm

12 October 2017

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Neil Shillito launched his global multi-manager fund in September 2007 - straight into the eye of the storm that was to mark the beginning of a major global financial crash. 10 years on, Shillito is celebrating his stewardship of the fund over a decade dominated by a series of challenging events.

Shillito has always favoured holding managers with exceptional stockpicking skills who he believes can demonstrate diligence in following a robust, repeatable process. Example holdings in his original vehicle, the SGWM Managed Fund, included Baillie Gifford Japan run by Sarah Whitley, Angus Tulloch’s renowned First State Asia Pacific, Downing UK Micro-Cap Growth managed by Judith Mackenzie and Veritas Asia managed by Ezra Sun.

In 2016, Downing LLP was appointed manager of the fund (which was renamed MI Downing Diversified Global Managers), with Alyx Wood joining Shillito at the helm of the £19 million portfolio. The move to Downing provided access to greater resource and deeper research capabilities.

The remit of the fund, to provide competitive risk-adjusted returns, has remained broadly unchanged albeit there is now a greater emphasis on fund selection using deep in-house research. A pairing policy was also introduced that matches up complementary funds to exploit return potential throughout an economic cycle. Shillito remains committed to the use of a combination of proprietary research and qualitative judgment to identify and invest in talented, disciplined and aligned investment managers.

The fund typically holds boutique or specialist funds because historically they have tended to outperform peers and indices. Current holdings favoured by Shillito include the Aurora Investment Trust, Edgewood US Select Growth, and Conventum Lyrical.

 

Aurora Investment Trust

Aurora Investment Trust is managed by Gary Channon at – they are long-term value investors, known for the depth of research. This research process often takes years and has involved everything from hanging around with Games Workshop fanatics to analysing the Indian deodorant market. The investment team monitored cricket bat prices for their work on Sports Direct, recruited mystery shoppers for Morrisons and tracked every house sale on hundreds of building sites to understand more about Barratt Developments.

The concentrated portfolio typically holds between 12 and 20 investments, with a focus on businesses that make high and enduring returns on capital, run by strong management teams. Channon’s style is typified by deep analysis based on real experience. This is followed by the patience to wait for the right opportunities to buy shares at attractive prices.

 

Edgewood US Select Growth

Another favourite holding of Shillito’s is the Edgewood US Select Growth fund, a portfolio that pursues long-term capital growth through a focused portfolio of 22 stocks. These are predominantly large-sized companies distinguished by their financial strength, levels of profitability, strong management and ability to deliver long-term earnings power. Manager Nick Stephens aims to purchase companies that are undervalued by the market with the belief that, over time, the prices of such stocks will rise to reflect the true value of the underlying company.

The manager applies strict selection criteria, including market share, unit growth, barriers to entry to the market that the business can impose, a track record of growth and profitability, production costs in comparison to the relevant business sector, government regulations, use of debt and quality of management. The fund is invested without reference to an index.

 

Conventum Lyrical

The Conventum Lyrical fund is managed by Andrew Wellington and has a quality-oriented value strategy. The fund invests in 30 to 40 large and mid-cap companies that it believes are not only deeply undervalued but also quality businesses. The investments are diversified by industry but concentrated enough to drive differentiated performance. According to eVestment Alliance Manager database, based on gross returns, Lyrical Asset Management Value Equity is ranked in the top 1% of U.S. Large Cap, Mid Cap and All Cap Value Equity products for the period since inception in April 2010 to 30 June 2017.

Shillito likes the fund because the manager is disciplined in his value approach, which is important when paired with Edgewood’s firmly ‘growth’ strategy. Both the Edgewood and Lyrical funds have individually out-performed the S&P 500  but over different discrete time periods either growth or value strategies will outperform. By pairing the two funds 50/50 Shillito aims to reduce the element of timing risk as to whether growth or value is in favour. At the same time it seeks to capture a high percentage of the gain from each style throughout the cycle. Shillito believes that this is a core strength of the Diversified Global Managers Fund – providing superior risk-adjusted returns over a market cycle without having to take ‘bets’ on either geographic, sector or style environments.

 

ENDS

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Jean Birrell, Downing LLP

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Important notice: this article is for information purposes, should not be regarded as investment or taxation advice and no reliance should be placed upon it. Capital is at risk. The value of investments and any income derived from may go down as well as up and investors may not get back the full amount invested. Any personal opinions expressed are subject to change and should not be interpreted as advice or a recommendation. Past performance is not a reliable indicator of future results. Downing does not offer investment or tax advice or make recommendations regarding investments. Downing is authorised and regulated by the Financial Conduct Authority (Firm Registration No. 545025). Registered in England No. OC341575. Registered Office: St Magnus House, 3 Lower Thames Street, London EC3R 6HD.

 Source: The Boutique Premium, Affiliated Managers Group Inc. 2015

Source: Lyrical Asset Management, Conventum Lyrical, September 2017 Monthly Report

Source: Lyrical Asset Management, Conventum Lyrical, September 2017 Monthly Report as at 30 September 2017 and Edgewood Growth Fund Factsheet as at 30 September 2017. Past performance is not a reliable indicator of future results.

 

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