Brexit investment trusts now chasing £450m as Buffettology becomes latest IPO

Keith Ashworth-Lord has said existing investors in Sanford Deland Asset Management’s funds have already signalled their interest in his new Buffettology Smaller Companies investment trust and that he is not worried about rival launches from Schroders and Tellworth.

The Buffettology Smaller Companies trust officially revealed its plans to IPO on Friday morning with a target of £100m. Companies House filings from July had already signalled an investment trust was in the works with four directors already revealed, including former Franklin Templeton smaller companies fund manager Stuart Sharp.

A trio of UK smaller companies investment trusts will therefore launch in Q4 2020 following a barren year for IPOs with Nippon Active Value being the only launch to date.

Paul Marriage announced details of his British Recovery & Growth investment trust on Tuesday, while two days later his former employer Schroders revealed they too planned to launch a UK smaller companies trust, Schroder British Opportunities, albeit one that will also tap into unquoted companies.

The marketing surrounding British Recovery & Growth and Schroder British Opportunities has touted the chance for investors to back UK businesses and jobs, while Brexit supporter Ashworth-Lord says UK plc has been unfairly hammered by investors creating great opportunities for stock pickers.

See also: Paul Marriage seeks £100m for patriotic investment trust in barren year for IPOs

SDL clients requested a Buffettology investment trust

In total, the trio of investment trusts are targeting £450m of capital at a time when the UK remains out of favour.

But Ashworth-Lord (pictured) said he is not worried at all about competition for capital from Tellworth Investments or Schroders or that allocations to UK equity funds are at a record low.

“For the last two years people have been telling us we should launch a UK small companies trust, saying it’s our bread and butter and right up our street. It’s a product that’s been led by demand from our client base.”

A few national wealth managers have shown interest in the product as well as smaller DFMs and advisers.

The SDL Buffettology fund has got too large to invest at the lower end of the market-cap spectrum with £1.3bn assets under management, he said. There would be some crossholdings between the funds, but he noted SDL Buffettology only has 15% crossover with the SDL Free Spirit fund.

The Buffettology investment trust will typically hold 30 to 50 smaller companies, all listed on the London Stock Exchange or quoted on Aim.

In June 2019, he revealed to Portfolio Adviser that he was planning a global Buffettology fund. He said that the global fund remains “a twinkle in the eye” but has been pushed back because SDL saw the opportunity to launch the Buffettology Smaller Companies investment trust.

See also: UK Smid managers come back fighting after being tarred by Brexit and Covid sell-off

The press knocks the UK too much over Brexit and Covid

Ashworth-Lord said the UK does not deserve to be shunned by investors.

“We’ve got a lot going for us in this country, but you would never guess that if you read the press. They’re constantly knocking this country and putting it down, whether it’s over Brexit or Covid or whatever.” He blames that negativity for the UK trading at a large discount to US equities and European börses.

He ranked the UK second only to the US as the best place to do business, pointing to the language, timezone, legal and accounting systems, and entrepreneurialism.

Last week, the Investment Association revealed retail investor allocations to UK equity funds are at a record low of 14% with £12.7bn pulled from the asset class since the Brexit referendum in 2016.

Ashworth-Lord is blasé about the effect of both Brexit and Covid-19 on UK companies.

“The majority of people who work in this industry are probably anti Brexit; I’m very pro Brexit. I thought it was one of the best things we’ve done for a long while getting away from the sclerotic regulation of the EU.”

He has been struck by the number of companies saying that it doesn’t matter for their business if the UK ends up trading on WTO terms. “We’ll be absolutely fine. The gloom, doom and despondency is way overdone.”

See also: ‘I see no way of an agreement being signed’: Brexit cliff-edge looms in 100 days

Covid hammers some SDL holdings

He admitted several stocks in the SDL Buffettology fund had been “hammered” by the coronavirus sell-off, naming Scapa and Trifast as examples.

“In both cases, the most recent trading statements have actually been quite upbeat relative to what they thought was the worst case scenario, and relative to what the analysts thought about the companies.

“That just confirms to me we’re getting through this. In the long distant future that collapsing market in March will just be a blip.”

He added that he loves a crisis. “I’ve had a whale of a time. We went into that bear market with about 15% net cash in the portfolio. And we’re currently at 5%.” He bought Games Workshop at £47.03 during the crisis and said it is now trading around £90, while Focusrite was at £3.90 and it’s at £8.30 now.

Mifid II had compounded opportunities in the smaller companies space, he said.

“All of a sudden, what that did was concentrate research in larger companies. The coverage of smaller companies really did take a pounding.

“That’s great news for us because we do all our own research; we don’t rely on brokers at all. The fact that fewer brokers were sniffing around the sorts of businesses that we buy is good for us because, chances are, we’ll get better valuations because of the valuation anomaly.”

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