This week I am looking at the SDL Buffettology Fund, an open-ended investment vehicle that operates within the UK All Companies sector and targets outperformance against the UK stock market over the long-term, which the manager defines as 5 to 10 years.
The fund was launched by manager Keith Ashworth-Lord in 2011 and as the name would suggest, Keith is a follower of the ‘Business Perspective Investing’ process made famous by Warren Buffett and Benjamin Graham. This process involves pure stock picking, paying no attention to external factors such as the economic outlook, but concentrating on purchasing shares in companies below their intrinsic value. Further to this, Keith prefers to find companies with durable operating franchises, high return on capital, strong free cash flow and an experienced management team.
Keith can invest in any company listed on the London Stock Exchange or Alternative Investment Market but his strict process filters down the universe of investable companies to around 40-60 names. The fund will generally hold between 25 and 35 of these companies at a time. Although the fund is constructed on a “bottom up” basis, Keith employs controls to ensure that he does not inadvertently end up with too high a concentration of companies operating in a particular industry or sector.
This high conviction approach to investing in quality companies has proved very successful for Keith since he launched the fund. Over this period the fund has gained 218%, compared to 81% for the UK All Companies sector and 78% for the FTSE All-Share index. This impressive record has also been achieved with below average volatility. However, the fund has not yet been tested in falling markets and a bias to small and micro cap companies (67% of assets) could prove challenging as the market gets to grips with the outcome of the Brexit negotiations.