Managing director Guy Bowles says he does not like the fact that fund of funds managers buy products that already exist and were not created specifically for them.
He also feels that however funds of funds are structured, they cannot get away from a second layer of fees. He says he did not want to create a fund that was going to be expensive or a package of funds created for other purposes. This led him to favour a multi-manager focus fund, where three managers each run a concentrated portfolio of 10 stocks.
Bowles says focusing on 10 stocks means the underlying managers cannot have any padding in the portfolio or small holdings which can act as a drag on performance.
Managing risk and protecting the portfolio on the downside was important to Bowles when he established the UK equity fund four-and-a-half years ago.
He considered investing in derivatives but did not want to limit the upside potential of the fund by paying commission to investment banks. He also considered investing in a portfolio of tracker funds to keep costs low but felt that as they follow the direction of the market, they are not always low risk.
Bowles says: “I wanted a similar level of risk to the market but with the ability to beat it. I think focus funds are a good idea and this is a multi-manager focus fund that allows me to impose rules on the managers. For example, I insist that if the price of a stock has halved, the manager either sells or doubles up.
“The managers must take a view on whether the stock has gone wrong or is incredibly cheap so that they should add to it. I will not allow them to sit on their hands and they like this because it is good housekeeping.”