The VT Downing Unique Opportunities Fund managed by Rosemary Banyard was launched in March 2020, so has been managed exclusively during Covid-19.
The fund, a portfolio of 25-40 positions with a market cap range of £150 million to £10 billion, has a quality focus. Rosemary looks for companies with unique characteristics that protect them against competitors and allow them to earn above average returns on equity capital. The characteristics she looks for include intangible assets such as brands, patents or regulatory licences; cost advantages stemming from process, location, scale or access to a unique asset; being the leading network in a business segment; and high switching costs which generate high customer retention rates.
While the pandemic has obviously had a major impact on companies and markets over the last 12 months, it has not changed the way Rosemary manages money. There are only seven names in the fund now which were not in the initial pre-Covid model portfolio. So while Covid-19 has not fundamentally changed her company selection, the manager believes that some of these businesses will benefit from emerging from lockdown.
Rosemary Banyard comments:
“The single biggest thing that will impact a few companies in the fund will be a return to some sort of normality for hospitals. Both in terms of carrying out non urgent operations and a recovery in outpatient procedures. Advanced Medical Solutions supplies wound dressings, and Tristel supplies, among other things, disinfectant for outpatient equipment. These businesses should do a lot better when hopefully our hospitals get back to normal. But I would have bought them anyway because they have very good market positions and lots of growth potential in the medium and long term.”
On the subject of companies pulling through the crisis, Rosemary believes that the most important thing that’s allowed these companies to survive lockdown is that they are very conservatively financed.
“There are 30 holdings in the fund and only six have any debt at all - the rest have net cash. Only two have had to raise equity finance, and in both cases that was only a 5% placing. The most important thing that helped them survive is their financial structure. However, there are also companies that have strengthened their positions with brand and service. An example might be Dunelm. Around three years ago, only 14% of revenues came from online sales. At the moment there are no shops open and they are trading at 70% of previous revenues, so there’s been a massive increase in demand online for their homeware products. That is testament to their brand, their range and their service levels.”
The fund’s focus is very much on UK small and mid-caps, and approximately 30% of the fund is invested in the Alternative Investment Market (AIM). A recent addition to the portfolio listed on AIM is Ergomed.
“The business has changed a lot since it listed a few years ago. It has always had a bedrock of performing clinical trials for drug companies that have to get through three phases of trials to get a drug approved. The group has recently added pharmacovigilance which means that it does safety tests that are carried out on drugs post launch. Particularly they specialise in trials and testing for cancer and orphan drugs, and they also have a unique network which includes carrying out trials in the Middle East and Africa where a lot of competitors don’t operate. Ergomed have number of unique aspects and specialisms to their business which are growth areas. They are also building up a portfolio in the US, another potentially strong and growing market.”
Performance of the fund since launch on 23 March 2020 has been strong, returning 53.53% versus the IA UK All Companies TR sector 54.35% .
Rosemary Banyard concludes:
“The past 12 months have been challenging for everyone, and I am pleased to have delivered positive returns in a difficult environment. However, I would stress that one year is a very short timescale and the aim of the fund is to deliver investors with a real return on their investment over the medium and long term. Importantly, average cash balances over the last 12 months were 20% which reflects the caution and care I applied while investing into the teeth of the pandemic. I am confident that the companies in the portfolio have resilient balance sheets and predictable earning streams, and they will keep delivering over time.”
Banyard began her career with James Capel & Co where she was a senior investment analyst for 12 years before becoming a fund manager at AIB Govett. She rose to prominence and developed a reputation as one of the leading female fund managers in the UK after she joined Schroders in 1997. For almost 20 years she was known for running the acclaimed Schroder UK Smaller Companies Fund with Andy Brough, and was for many years lead manager of the award-winning Schroder Mid Cap Fund PLC as well as heading up several other segregated UK equity mandates, managing total assets of circa £1 billion. In 2016 she joined Sanford DeLand to launch and manage the Free Spirit Fund. The Schroder UK Mid Cap trust returned 16% pa while she was manager and in her two and a half years managing money at Sanford DeLand the Free Spirit Fund returned 31% placing it in the top decile of the IA UK All Companies sector.
For information on The VT Downing Unique Opportunities Fund click here. The fund is available on various platforms and wraps.
Opinions expressed in this document represent the views of the investment manager at the time of publication, are subject to change, and should not be interpreted as investment advice.
Risk warning: Please note that past performance is not a reliable indicator of future results. Capital is at risk. Investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Investments in this fund should be held for the long term and are higher risk compared to investments solely in larger, more established companies. Diversification may not be achieved and investments may be in the same sector. Opinions expressed represent the views of the Fund Manager at the time of publication, are subject to change, and should not be interpreted as investment advice. Please refer to the latest full Prospectus and KIID before investing; your attention is drawn to the risk, fees and taxation factors contained therein.
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Downing Fund Managers is part of Downing LLP, a company with over 30 years’ experience and more than £1 billion AUM. As investment specialists in smaller companies and funds, we focus on areas of the market where we believe there are structural inefficiencies and where our proprietary research can uncover hidden gems that we believe will provide outperformance over the long term. We are also committed to the Principles of Responsible Investment, which can make investments more rewarding by being profitable for our investors.
Downing LLP is authorised and regulated by the Financial Conduct Authority (FRN: 545025). Registered in England and Wales (No. OC341575). Registered Office: 6th Floor, St Magnus House, 3 Lower Thames Street, London EC3R 6HD.