Boutiques take on manager Goliaths

Small investment funds prove that when it comes to managing your money, flexibility and experience can be winners. By Emma Dunkley reports

It's not always the case that bigger means better. When it comes to investment, there are small "boutique" fund management groups that deliver superior performance compared with some of the large, renowned firms.

And at a time when economic conditions are dire, automatically opting to put your money with behemoth groups that seem "too big to fail" could mean you miss out on opportunities in the smaller, quality boutiques.

Rather than being unknown entities, boutiques – such as Ruffer, RWC Partners and Troy Asset Management – are often founded by successful managers from top investment firms, who have decided they can better manage money by doing it their own way.

"More often than not, the average manager at a boutique is more experienced than at a conventional house," says Rob Burdett of Thames River Capital. "To start up alone, you need to have been around a while to have the confidence to set up, let alone have the backing of an investor."

These managers tend to put in a significant chunk of their own money, which not only gives them a major incentive to perform but shows the level of conviction they have in their own investment process.

For one of the UK's most reputable fund managers, look no further than Marlborough, where Giles Hargreave runs the stellar-performing Special Situations fund. Of the firm's £2bn in assets, managers have put in around a third, says Adrian Lowcock at Bestinvest. "Marlborough specialises in investing in UK smaller companies and are able to add value by remaining small and nimble," says Mr Lowcock. "If they became too large, performance could struggle."

Boutiques, which are accessible through execution only stockbrokers and financial advisers, for example, often have a limit on the amount of investor money that flows into funds, so the manager is better able to run it flexibly, reacting more quickly to changing market conditions.

Compare them to the likes of Neil Woodford at Invesco Perpetual and Nigel Thomas at Axa Investment Managers who run billions of pounds, and it is clear that boutique managers could have a massive impact on their much smaller funds when they make even slight investment changes.

"Boutiques are more aligned with investors' needs," says Mr Burdett. "The average boutique manager has greater freedom to invest." This flexibility means managers are not limited to buying certain companies just because they form a large part of the market. "They can make positive investment decisions, because they only own shares they think are going to go up," adds Mr Burdett.

But you would be wise to have some reservations. While some of these boutiques have limits on the amount of money they take in, others struggle to garner enough. Insynergy Investment Management, which is backed by entrepreneur James Caan, recently announced it is closing its fund range as it could not raise enough money.

Meera Patel at broker Hargreaves Lansdown says one boutique that is "up and coming" is Troy Asset Management. So much so that their flagship fund – Trojan – is closed to new money, although existing investors can still buy the fund.

"Another of its funds we like is the Trojan Income Fund, which is gaining a lot of attention due to its consistent performance," says Ms Patel. She adds that the managers, who have equity in the business, have a vested interest to perform well.

Ruffer is another boutique that has returned great performance. "Founded in 1994 by Jonathan Ruffer, this boutique has gone from strength to strength and now has £11bn under management," says Mr Lowcock. "Actually, Ruffer's growth suggests it is becoming difficult to continue referring to it as boutique at all."

But, despite the virtues of these funds, advisers warn there are risks. "A boutique will not have the deep pockets to employ a large team of analysts to support the manager," says Gavin Haynes at Whitechurch Securities. "Also, with a boutique, you often follow the manager and if something happens to them, there is no plan B."

 

Emma Dunkley is a reporter at citywire.co.uk

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