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Absolutely Argonaut

Argonaut was the first joint-venture firm set up by managers in partnership with Ignis Asset Management and stands as one of the purest boutiques out there.

The firm has just two staff, Barry Norris and Olly Russ, with the operational burden effectively outsourced to Ignis via the JV agreement.

The two managers provide the intellectual capital and fund expertise while Ignis supplies its finance, distribution, marketing and operational capabilities.

As with the three other firms in this so-called village of boutiques, Argonaut is set up as a 50/50 partnership between managers and parent.

Norris and Russ were previously at boutique firm Neptune, where the former built up a strong track record on the European opportunities portfolio and the latter worked across various UK funds.

Before that, Norris worked at Baillie Gifford while Russ was at Orbitex with Neptune founder Robin Geffen, moving to hedge fund firm Invicta in 2002 before rejoining Geffen in 2004.

They were approached in 2005 by Ignis director Jonathan Polin, who was looking to plug gaps in the firm’s range via this JV boutique concept.

Russ says the pair had never been keen on managing people or the admin side of the business and this deal allowed them to focus on running money backed by the operational strength of a blue-chip firm. Norris and Russ now work out of a single room in Belgravia, where secrecy is so tight that the pair are unaware who inhabits the other offices. All they know is that a Russian oligarch is situated somewhere upstairs, boasting meeting rooms bigger than their office.

They are stockpickers first and foremost and launched the firm with two main European equity funds, an Alpha mandate for Norris and an income portfolio run by Russ.

Argonaut has been in the news over recent weeks, with an absolute return launch its first additional product since the initial pair.

Norris’ European alpha fund is a basic conviction portfolio designed to outperform the benchmark and the manager is at the very top of the sector over five years across Neptune and Argonaut.

Meanwhile, European income was among the first vehicles focused on dividends on the continent despite UK income funds typically ranking among the top sellers.

Russ adds that income as a concept is well understood by advisers and the European focus gives a wider choice of stocks plus the added advantage of the currently strong euro.

Finally, the latest absolute return launch, lead managed by Norris, is designed as a third leg for the group between the aggressive alpha and more cautious income offerings.

This comes after a significant testing period, during which the pair has displayed their ability to produce positive returns in various market conditions.

Like most other absolute return mandates, the Argonaut fund can take long and short positions in stocks as well as using cash and derivatives to generate absolute performance.

Despite the differences in mandate, the investment approach used is similar across the range, with the managers perusing various screens, research and general newsflow to find potential holdings.

They are essentially looking for companies with cheap valuations plus a rising stream of earnings or typical restructuring stories where the situation is better than the market believes.

Key to all this is some manner of catalyst that could potentially make these cheap companies less cheap.

In total, the firm now runs around £800m across the two flagship funds, plus a couple of Sicavs and various segregated mandates.

Looking at Europe as a whole, Russ says last year may well have been the worst-ever, with markets halving.

After Lehmans, he believes there was a mini-depression, where business ground to a halt, although the system is now slowly moving again.

On the value side, European p/e’s are at a 30-year low although earnings are hard to predict.

Looking at dividend yields against p/e’s, they are close to crossing over, which has never happened before in Europe.

This occurred in the UK in the dreaded 1974 bear period and the market was subsequently up by 150 per cent the following year.

Russ says there will be dividend cuts in Europe but less income comes from the beleaguered banking sector and restructuring packages on the continent have been much less restrictive on continuing these payments.

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