Fiducia Wealth Management
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As part of our ongoing client communications, we like to regularly post quarterly Fund Manager Q&As, in an effort to give a little insight into the strategies of some of the managers within our portfolios. With the financial marketplace experiencing such unprecedented upheaval our Investment Committee is working continuously to adapt our portfolios to accommodate and protect against the global fluctuations and challenges presented by Covid-19.

This month, we hear from Rosemary Banyard – Fund Manager of the VT Downing Unique Opportunities Fund – who talks about this investing opportunity and hope you will find this both an interesting and timely read.

Who is Rosemary Banyard?

Rosemary 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 17%* p.a. 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. She joined Downing in March 2020 to launch the VT Downing Unique Opportunities Fund.

*Schroder UK Mid Cap Fund Plc, Annual Reports & Accounts 2015. ** Financial Express as of 28 June 2019.

Note from Downing: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.

So let’s take a look at Rosemary’s answers to our questions…

Fund Manager Q&A:

How is DUO managed?

The investment objective of this fund is to achieve capital growth and income over the long term, defined as at least 5 years.  We seek out businesses which have clearly identifiable characteristics that protect them against competition, observing that such businesses typically and regularly achieve above average returns on equity without excessive financial gearing. Having identified such companies, detailed modelling of the financial history is carried out to confirm the quality of the fundamentals, and forecasts are made to assess the intrinsic value of the shares, by discounting future cash flows estimated with conservatism.  We aim to invest in a focussed portfolio of 25-40 such businesses at or below the estimated intrinsic value, and across a range of sectors. Businesses that make it into the portfolio are likely to be the only UK listed company in their industry, or one of very few and possessing a distinct corporate strategy, and so are considered “unique opportunities”. The portfolio is constructed with fairly even weightings between the holdings as each business is seen as having attractive growth potential over the long term as its superior returns on equity compound up over time.

With Brexit behind us do you see areas of potential value in the UK and if so, is this market cap specific or across the board?

Businesses have had plenty of time to prepare for Brexit, and good management teams have put in place contingency plans for any upheaval, for example by building buffer stocks to cope with port disruption or by re-registering patents and regulatory licences to be valid in both the UK and Europe. One area where many details still need to be clarified is in financial services. However, generally, the lifting of uncertainty may attract more investors back to the UK across the market size spectrum.

How is your fund positioned at the moment?

This fund invests in unique individual businesses which have the potential to grow in highly specific niches. Examples range from low-cost private housebuilding to the sterilisation of hospital equipment to the automation of accounting processes to the sterilisation and purification of water. No attempt is made to forecast macro-economic trends. Some sectors are however unlikely to be represented, on account of excessive financial gearing, lack of visibility of future cash flows, or the difficulty of sustaining a competitive advantage, for example the banking, oil & gas exploration, mining, and leisure sectors. Some businesses in the fund would benefit from a resumption of normal activities in hospitals, retailing, media and marketing in due course.

Your fund is relatively small at the moment, is there a maximum size at which the execution of your strategies and best ideas become limited?

My core competence is investing in UK small-cap and mid-cap companies. The fund is intentionally a concentrated portfolio aiming to invest in 25-40 unique businesses. These factors will and should constrain the optimal maximum capacity of the fund to an estimated £500m in round numbers.

At Fiducia we are continuously looking to deliver outstanding value and expertise to our clients, if you have any questions regarding your investment portfolio please not hesitate to speak to a member of our team. We are a multi award-winning Chartered Financial Adviser based in Colchester, Essex. Our advisers will ensure you have the right investments to help you meet your financial goals, in a tax efficient way that works for you.