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Buffettology and the road ahead

Keith Ashworth-Lord talks about the fund's process and addresses concerns about its size
Buffettology and the road ahead
  • Keith Ashworth-Lord discusses the process behind the outperforming CFP SDL UK Buffettology fund
  • He addresses concerns about the fund's size, and talks through potential areas of expansion for his firm

“Don’t bet against the UK” is not a surprising soundbite to hear from a UK equity fund manager, but also one that not all can utter with much conviction based on recent history. A 28.9 per cent return in the five years to the start of 2021 might put the average UK equity growth fund marginally ahead of the troubled FTSE All-Share index, but such performance looks pitiful compared with much stronger gains made overseas (see table).

Keith Ashworth-Lord, the manager who warned investors not to bet against domestic shares in a recent conversation with the IC, can at least back his words with enviable past performance. His CFP SDL UK Buffettology Fund (GB00BF0LDZ31) made an 83.4 per cent return in the five-year period, putting it notably ahead of its UK peers and not far behind the S&P 500.

He believes negative sentiment on the UK has presented a great buying opportunity, adding that Brexit, and the roll-out of a vaccine, could lead it to greater things. He also argues that the ease of doing business in the UK will continue to serve companies well.

While such views sound reassuring, investors might be more concerned about whether the Buffettology fund, a highly concentrated portfolio of winning names including Games Workshop (GAW) and Liontrust Asset Management (LIO), can still deliver strong returns in different market conditions.

The fund's success has seen it grow beyond the £1.5bn mark, raising questions about whether the manager can continue to buy promising growth stocks, especially further down the market-cap scale. Yet Mr Ashworth-Lord argues that this is not hindering performance or significantly altering the investment approach.


How Buffettology has fared versus UK funds, stocks and leading overseas markets

6m (%)1yr (%)3yr (%)5yr (%)10yr (%)
SDL UK Buffettology17.193.8530.5583.41 
FTSE All-Share Index9.33-9.82-2.7128.4671.91
IA UK All Companies sector average14.21-6.012.0428.983.63
MSCI AC Asia ex Japan Index18.6321.1625.19103.82114.95
S&P 500 Index9.5112.6739.0398.14242.07

Source: FE. All data to end of 2020. Cumulative total returns.


He argues that Buffettology remains an all-cap, “waterfront” fund, with exposure to companies of various sizes. The fund had 21.5 per cent of its assets in the FTSE 100 at the end of November, with 27 per cent in the FTSE 250, 13 per cent in small caps and fledglings, 26 per cent in the Aim market and 6 per cent in two US-listed stocks, Berkshire Hathaway (US:BRK) and pest controller Rollins (US:ROL).

The fund’s extraordinary growth has instead had two main consequences. The team now steers clear of the very smallest stocks. And while they can still buy small-cap names including the likes of PayPoint (PAY), it can take longer for the fund to build up, and exit, such positions.

“To get the holdings sometimes takes a little bit longer than it used to do,” Mr Ashworth-Lord notes. “The only thing we’ve actually positively said ‘No we’re not going to do any more’ to is micro caps, which I’d define as under £100m and I should probably stretch that to a £150m market cap. The simple fact is we end up owning 20 per cent of the company but it only accounts for half a per cent of the fund. Even if it doubles it won’t move the dial on performance.”


When is big too big?

Excessive size can become a problem for funds, and there are signs that can suggest a manager is running too much money. For Mr Ashworth-Lord, performance issues or a need to notably increase the fund’s number of holdings – which currently stands at 32 – would prompt measures to limit the fund’s growth.

“For me performance is the absolute criterion – if I start to think we’re getting compromised on performance or we might have to go beyond 35 holdings, which I’ve always set as the ceiling, then I think we would have to take measures,” he says. Such measures would likely involve a “throttling back” on marketing for the fund in the hope that inflows would slow.

However, investors should note that the fund’s concentrated approach can cause complications elsewhere. UCITS diversification rules prevent fund managers from having 10 per cent or more of assets in a single stock, and the Buffettology team became a “reluctant seller” of Games Workshop shares in November to avoid breaching this limit. However, a fall in the share price allowed the team to later buy in at prices substantially beneath where they had previously sold. The stock represented 8.8 per cent of assets at the end of November.

More broadly, Mr Ashworth-Lord stresses a focus on consistency. The team follows a business perspective investing philosophy, designed to identify companies with easily comprehensible business models, transparent financial statements, high returns on capital, strong balance sheets and relatively predictable earnings. Mr Ashworth-Lord stresses the need to follow this process religiously, while remaining patient with stocks that look attractive but, for the time being, seem too expensive.


2020’s fund changes

Buffettology has extremely low turnover, with the manager tending to sell two companies and buy two new ones in a typical year. Of the stocks that entered the fund at its 2011 launch, 14 are still in the portfolio. However, the events of 2020 prompted greater activity than usual.

A major feature of this was the team calling time on conventional retail and customer-facing businesses. Revolution Bars (RBG), Restaurant Group (RTN) and Next (NXT) all exited the portfolio. Mr Ashworth-Lord also sold Air Partner (AIR), the aviation services group, although this related to its limited size and ability to influence the fund’s performance. The team also looked closely at a position in leisure travel group Jet2 (JET2) but stuck with it, in part due to its proactive approach, from cancelling its dividend to selling distribution and logistics business Fowler Welsh and raising funds early on.

For Mr Ashworth-Lord the retail disposals reflect lessons learned. “If that taught me anything it taught me at last, after 35 years in this, that I’m never going to make much money out of retail and directly consumer-facing businesses where fashion and fad is the trend,” he says.

The team also topped up on holdings in Games Workshop and Focusrite (TUNE) in the wake of the sell-off early last year. The fund’s only new holding was HomeServe (HSV), a position initiated in January 2020.

Mr Ashworth-Lord tends to run winning stocks, with Games Workshop being a notable example, but will sell if a company's outlook appears to have fundamentally worsened. "An example would be Domino's Pizza (DOM) under David Wild, with changes going on with the business model. There were a whole load of amber flags there," he says.

Another sell case emerges if the fund manager has "messed up" and overlooked a weakness in a business model, with Mr Ashworth-Lord's former position in Dignity (DTY) serving as a good example. 

"We lost a shedload of money with Dignity," he says. "I thought I knew the funeral services industry very well. What I missed completely was you had price comparison websites springing up. People had price transparency without haggling the bill. I didn't spot those comparison websites. The result was I lost half my money."


Buffettology's top ten holdings (%) at the end of November
Games Workshop8.84
Liontrust Asset Management5.23
AB Dynamics3.70
London Stock Exchange3.60
Dechra Pharmaceuticals3.54
Croda International3.21
Source: Sanford DeLand, end November 2020 


What next for Sanford DeLand?

Buffettology is not the only fund in the Sanford DeLand Asset Management roster. CFP SDL Free Spirit (GB00BYYQC271), which launched in 2017, has an emphasis on small and mid-cap stocks, although it does hold some bigger names such as Unilever (ULVR).

Andrew Vaughan inherited the fund from Rosemary Banyard some 18 months ago. The manager change, and the effects of the pandemic, have led to significant activity in the fund. Mr Vaughan has sold some names that looked vulnerable amid the pandemic, including SSP (SSPG), while dropping the likes of AG Barr (BAG) to reduce overlap with the Buffettology fund.

He also did "quite a lot of buying", investing in Codemasters (CDM)​​​​​YouGov (YOU)Michelmersh Brick (MBH)Eleco (ELCO) and Intertek (ITRK), as well as topping up on existing positions. Like Buffettology, the Free Spirit fund tends to stick with strong performers, including pandemic winners EKF Diagnostics (EKF) and Tristel (TSTL).

While Free Spirit holds smaller companies, Sanford DeLand's attempts to launch an investment trust that would go "right down the market cap scale" failed last year amid weak sentiment on the UK. However, Mr Ashworth-Lord suggests the Buffettology Smaller Companies Investment Trust could return in future.

"It's in a drawer marked 'to be revisited'," he says. "The sad thing is that when we revisit it, it will be because markets are a little bit more stable and investors are not so fearful. Remember your Buffett: be greedy when others are fearful. People should have been piling into this investment trust...but unfortunately there wasn't the appetite for risk as we saw it."

The Sanford DeLand stable could also ultimately expand beyond the UK, with the company mulling the idea of a global equity fund.

"We've always had a twinkle in the eye for a global fund," Mr Ashworth-Lord explains. "The Buffettology process doesn't respect borders, it crosses borders...all you need is stable markets, good legal systems and entrepreneurial areas, so developed rather than emerging markets. We would probably have to find a fund manager, and one or two analysts whose forte is global investment before we dared to go down that route."