Many asset managers will allocate specific managers to certain funds and that’s their job, to look after one or more funds only. However, according to Anna Macdonald (pictured), fund manager at Amati Global Investors, this is not their way of doing business at all.
“We all look after all the funds together, we don’t have certain people put on to one product like the VCT for instance,” says Ms Macdonald.
For a firm with a variety of products whose performance would put their big brand peers to shame, for instance the nigh on £1 billion UK Smaller Companies Fund, it’s clearly a system that seems to work.
When it comes to tools the firm uses to aid the discovery of a company’s true value, again somewhat against the herd, Ms Macdonald says they use Canaccord Genuity’s Quest software. This tool helps them to look at a firm’s capital cash flow returns and they can use that to compare the company’s metrics, with no one particularly favoured, against historical data.
“We look at valuation metrics to try to really make sense of that company against the sector and against our wider portfolio. We think about it as a team of five,” Ms Macdonald says, adding that every stock has to compete to be in the portfolio.
The UK Smaller Companies fund has a maximum of 80 holdings and its turnover rate averages out between 25 and 30 percent per annum.
While being bottom stock pickers, Ms Macdonald does mention some of the macro events that have received headlines this year such as the spectre of inflation, is it transitory or here to stay, the amount of IPOs and fundraises. While not getting blinded by the big picture viewpoint, it does inform the team of the trajectory of certain industries and with inflation, its impact on growth names.
Economies of scale are important in the asset management business and when it comes to investor type, institutional investors won’t tend to look at a fund until it has breached the £100 million AUM mark. Ms Macdonald joined the firm in 2018 when AUM was just over £100 million but now with inflows into products such as the Smaller Companies fund, wealth managers are well represented on the shareholder register apparently.
Time to sell
When it comes to Amati’s sell discipline, Ms Macdonald makes the point the UK Smaller Companies fund has a cash position of around 6 percent so they’re never ‘hamstrung’ in that they have to sell a stock to simply make room.
One driver to sell a stock would be a new investment that is at a better valuation or professional opportunity than something that's already in the portfolio. Secondly, and commonly cited by fund managers is that when they feel that the investment case has fundamentally changed from when the company was originally bought. There may also be a change in the management’s focus which would cause a rethink of the company’s place in the portfolio.
Ms Macdonald takes me through the firm’s process of how it tracks stocks using the example of tech company GB Group which specialises in identity verification and fraud prevention. She displayed notes she had written on the company at various times arguing to buy, for instance when it had made an earnings accretive acquisition and sell, at a later date, when GB Group looked to be fully valued. After her notes have been read by the whole team, they take a vote on the stock whether it is to be included in the portfolio or not. A true demonstration of the investment process indeed.
Amati has come a long way in just a few years and with the recent addition of Scott Mackenzie from Saracen Fund Managers earlier this year is a firm with wind in its sails. While Ms Macdonald describes the year as having been ‘difficult’ this a fund manager that may well have the talent and structure to weather any storm.