Since launch in February 2011, the £92.8m fund’s returns have been almost double the IMA Global sector average and the fund has significantly outperformed its MSCI AC World index benchmark.
The aim of the fund is simple: to achieve long-term capital appreciation. The managers – ex-Liontrust stars Jeremy Lang (pictured) and William Pattisson, along with Ben Fitchew and Gianluca Monaco – have an interesting approach to stockpicking, focusing on behavioural bias and the psychology behind the market.
“We are pretty obsessed with psychology and have spent a lot of time defining our process,” Mr Fitchew says. The fund’s managers seek to understand the three areas of the market, he says. First is the main part, company management, which is the central source of all risk in the market. They then combine looking for that low-risk company management in two different ways – relatively low-risk, fast-growing stocks that are misunderstood by sell-side analysts and value stocks, where there is constrained management behaviour as a result of some trauma.
The fund, says Mr Fitchew, is adopting a “barbell approach”, looking for beaten-up stocks and interesting, fast-growing companies. “On the growth side, one driving theme has been the fast-growing internet companies and in healthcare we have seen an interesting skew to biotech businesses, crowding out, to some extent, the big pharma businesses,” he says.
“On the value side, we look for investor bias – where stocks have a traumatic past, for example. Airlines, have seen consolidation and, combined with investor wariness of airline businesses, we have found some good opportunities, particularly in the low-cost operators.”
The fund itself is described as a 150/50 fund, which means it has net long and net short positions. At the time of writing, the portfolio was made up of roughly 450 long positions and 80 short positions.
“We use the short book with the long book to smooth out the volatility of the overall fund, and that has worked exactly as planned in the fund [so far],” Mr Monaco explains. “Forecasting is very difficult, so we would never use the short book to hedge against predicted macro events that might never happen.”
Mr Fitchew adds: “We see the short book not as hedging out specific exposures – we are structurally net long – the point of the short book is a ‘bleed strategy’, so in bull markets the short book would tend to go up, but it is there for those market shake-ups in which it can provide protection.”
The strategy has worked well – the fund posted a 34.4 per cent return from launch to December 6, compared with the IMA Global sector average return of 17.42 per cent and a benchmark return of 21.39 per cent, according to FE Analytics data.
“We have found both sides – value and growth – working throughout this year, which is unusual given the market rally,” Mr Fitchew says.
It is this track record that should spark interest among advisers when the fund reaches its third anniversary in February – and the managers are ready to take on more investor money.
“We expect, after hitting the third anniversary, to appear on the radars of those investors who aren’t allowed to consider those funds that don’t have that proven track record,” Mr Monaco says.
“In the same respect, we also think, given the capacity in the global space, [the fund] could grow to $8bn-$10bn (£4.8bn-£6.1bn) because, in our continued effort to minimise risk, one of the things we look at is free flow and market capitalisation. We wouldn’t invest in anything with a market cap of less than $1bn. Everything we have done [so far] is scalable.”
Expert View
Martin Bamford, managing director, Informed Choice:
“Ardevora is a boutique fund manager with a short track record, having only been founded in 2010. The managers follow an interesting investment approach based on behavioural psychology – trying to exploit the behaviour of investors in markets. The fund uses a 150/50 long/short approach, with the managers able to gear their long positions up to 150 per cent and concurrently take short positions, profiting should a particular stock fall. This is a very interesting and innovative fund that is unlikely to appeal to the majority of retail investors. It could form part of a portfolio for more experienced or adventurous investors looking for something genuinely different.”
