Castlefield CFP SDL UK Buffettology is amassing cash due to high share prices

The fund's manager, Keith Ashworth-Lord, aims to emulate Mr Buffett's style by finding companies he can hold indefinitely, and buying them at a point when circumstances have caused their share prices to be undervalued. Often this means he will invest on market dips.

The companies Mr Ashworth-Lord favours must have attributes including: a business model that is easily understandable, transparent financial statements, consistent operational performance with relatively predictable earnings, and the ability to generate high returns on capital employed and convert a high proportion of accounting earnings into free cash.

The fund typically holds between 25 and 35 stocks and Mr Ashworth-Lord deliberately keeps it concentrated as he believes this allows him to understand each company in more depth. 

Since launching in 2011 the fund has consistently delivered strong returns - in terms of performance it is in the top quartile of the Investment Association (IA) UK All Companies sector over one, three and five years. 

Performance

The strong performance has drawn investors to the fund, so that its assets under management have increased from £30m at the start of 2016 to around £150m.

But buying good companies at discounted prices is now proving more difficult as markets overall are looking expensive, and as a result the fund's allocation to cash has climbed to 18.2 per cent. "The inflows have been extremely strong, but I've not been prepared to invest it willy nilly," says Mr Ashworth-Lord. "There has got to be a very good business case for putting the money to use."

In March the fund also received £4m in cash from the takeover of one of its holdings, Lavendon Group.

Mr Ashworth-Lord has topped up existing positions in soft drinks manufacturer AG Barr (BAG), which produces branded products such as Irn-Bru and Rubicon. He believes the company has scope to grow Irn-Bru's market share in England and Rubicon's market share in Scotland. And AG Barr has made progress on reformulating its drinks with lower sugar, ahead of the sugar tax that will come into force next year. 

He has also been adding to an existing holding in pizza delivery company Domino's Pizza (DOM), which suffered a share price fall in June on the back of a sell note produced by broker Investec.

"With the best will in the world, there was nothing new in that report that made me think I might revisit what I think about Domino's," says Mr Ashworth-Lord. "The net result was the shares got bashed up, which was a wonderful opportunity to buy into a business that over the past 15 years has been a 15-bagger [made 15 times his money]. It's been a cracker and it’s got a lot more to go."

He has also bought retailer Next (NXT), another company whose shares have been substantially beaten up, and Craneware (CRW), which engages in the development, licensing and ongoing support of computer software for the US healthcare industry.

However Revolution Bars (RBG), which Mr Ashworth-Lord added in January, suffered a 40 per cent fall in its share price in May. "The reason was a wholly unexpected profit warning seemingly based on management failing to anticipate and control operating costs," he says. "Revolution is now a sitting duck if management fails to get a grip."

Typically, the fund’s philosophy means Mr Ashworth-Lord will only sell a stock if:

• there has been a permanent deterioration of the business, its growth prospects or management

• an alternative, better investment proposition has come up, but cash is needed to invest in it

• a mistake has been made and the reality of the business is a lot less favourable than originally thought.

Despite his view as a "committed Brexiteer" that there is value in leaving the European Union, he does not pay too much attention to the macroeconomic picture.

He explains: "I just carry on trying to find great businesses and seeing if I can invest in them for a price where I think I'm going to get more in cash flow from here to judgement day. And then I discount it back and compare it to what I'm being asked to pay, and if that works out then I will invest."

However he acknowledges that over the next five to 10 months UK businesses focused on domestic consumption might get weaker. But for investors it is the long term that counts.

"We are all going to be a lot richer in five or 10 years' time than we are now in the western world and gross domestic product (GDP) per capita will grow," he says. "I believe that once we've freed ourselves from the EU it will grow even faster. Concentrate on the businesses that are going to be bigger and better in 10 years' time - the rest is noise."

Source: Morningstar, *Sanford DeLand Asset Management as at 30/06/17

Top ten holdings as at 30/06/17 (%) 

Source: Sanford DeLand Asset Management

Sector Breakdown (%)

Source: Sanford DeLand Asset Management