The coronavirus outbreak and subsequent lockdowns in many countries around the world might not seem like an obvious environment in which to embark on a new venture. But this is exactly what Rosemary Banyard, who is best known for her years running Schroder UK Smaller Companies fund (GB00B76V7Z98) and Schroder UK Mid Cap Fund (SCP), did. In the middle of March, she and her colleagues at Downing launched VT Downing Unique Opportunities Fund (GB00BHNC2614). And its holdings will include UK smaller companies, which are typically more vulnerable than larger ones in difficult market and economic conditions – such as at present.
But Ms Banyard says the launch had been in the works for some time – they did not suddenly decide to launch a fund in March. “It took months to prepare – you’ve got to go through a lot of regulation,” she explains. “That said, I felt a lot happier starting a fund in mid-March than, say January, because a lot of share prices had come down. So for a long-term investor it was actually a great time to start investing. And the fund can invest in market capitalisations of between £150m and £10bn – everything in the UK except micro- and mega-caps. There’ll be quite a lot of [mid-caps] in the fund and some holdings that are in the bottom end of the FTSE 100 index.”
Larger holdings include FTSE 100 software company Aveva (AVV) – one of a few the fund holds in this sector. “I owned it for many years at [previous employers] Schroders and Sanford DeLand Asset Management,” she says. “It is one of three leading producers in the world of software for designing and maintaining plants [such as] an oil refinery, or a chemical, food or pharmaceutical plant. It makes visualisation 3D design software, which you can also use to monitor and manage the maintenance.”
She adds that the company’s customers are likely to stay loyal because it is difficult to switch to similar products provided by other companies. “I’ve been comfortable investing in software companies for many years because they often have very high margins and, typically, if they dominate a particular [area] in an industry… switching to another provider is often very hard and customers tend to be very sticky. So software companies very much fit my assessment of a business to invest in.”
Another early and maybe topical addition to the fund was Tristel (TSTL) – a manufacturer of infection prevention and contamination control products. But Ms Banyard maintains that this was not added in response to the coronavirus outbreak and she would have bought it anyway, as it has two of what renowned US investor Warren Buffett calls ‘moats’ – the ability to maintain competitive advantages.
“Tristel makes a disinfectant for out-patient equipment and hospital in-patient surfaces, such as cupboards and beds, [from] chlorine dioxide,” says Ms Banyard. “This needs to be mixed from two base substances just before it’s used and Tristel has patents on a pump that mixes these two substances. Also, many equipment manufacturers say that if you don’t use a Tristel product the warranty on their equipment is invalidated – Tristel has managed to get the equipment manufacturers to recommend [its product] as the cleaning product of choice. Tristel is trading very well at the moment and has seen a pick-up in demand, which is hardly surprising. But the main upside is that it is applying to launch its products in the US – a huge market. It needs US Food & Drug Administration approval which may be a year or two away.”
Ms Banyard adds that she hasn’t invested in different companies than she would have before the coronavirus outbreak gathered pace. “But I’ve started [with the ones on my list that have] cash, preferably enough to survive for nine or even 12 months of a real downturn.”
Ms Banyard aims for all her holdings to be companies that can achieve above-average returns on capital, based on a sustainable competitive advantage. “If a company is achieving above-average returns, particularly over several years, normally that’s a hint that they have a sustainable advantage or two,” she explains. “You can then try to work out what they are. Or if a company is going through a period of change and getting rid of some poor performing businesses it might not yet be evident in the numbers, but [if] I can see that this company has got these advantages it [might] eventually get to above-average returns. Or it could be a cost advantage, a patent or regulatory protection.”
By early April around half the fund’s assets were invested, meaning that Ms Banyard can take her time investing the rest of the assets so that 80 per cent are invested six months after launch – in line with regulations. But she adds: “I’ve always tended to run my portfolios with a certain amount of cash, say 5 to 10 per cent. That’s because occasionally you suddenly find that a business you’ve wanted to invest in for years is on an attractive valuation, and you [need] cash to be able to react to that straight away.”
Rosemary Banyard CV
Rosemary Banyard is manager of VT Downing Unique Opportunities Fund. Between 2016 and 2019 she worked at Sanford DeLand Asset Management where she ran CFP SDL Free Spirit Fund (GB00BYYQC271). Between 1997 and 2016 she worked at Schroders, where she ran the Schroder UK Smaller Companies and Schroder UK Mid Cap funds.
Ms Banyard began her career at James Capel & Co where she was a senior investment analyst for 12 years before becoming a fund manager at AIB Govett.
