Secrets of Success: Putting his reputation where his mouth is
Saturday 15 May 2004
Over the years I have chucked some brickbats in the direction of the fund management community, so it is a pleasure from time to time to give credit where credit is due.
Over the years I have chucked some brickbats in the direction of the fund management community, so it is a pleasure from time to time to give credit where credit is due. Three years ago Philip Wolstencroft left his job as Merrill Lynch's market strategist in London to try his hand on the other side of the fence as a fund manager with the Edinburgh-based boutique, Artemis.
The move gave him the chance to take the quantitative stockpicking model he had helped to develop while at Smith New Court (which was subsequently sold to Merrill Lynch) and see if it could work as well "in real life". The model is based on a series of quantitative indicators, but focuses on two key variables: changes in earnings estimates and movements in professional investor sentiment.
By tracking revisions to earnings estimates from some 200 broking firms and plotting changes in institutional ownership of the main stocks and sectors in the leadingindices, the model produces a ranking of the stocks and sectors within a given market index. The best ideas from this screening in the old days went to make up Mr Wolstencroft's monthly recommendations as a broker and now form the basis of his new fund, Artemis European Growth.
There is nothing particularly unusual about the approach Mr Wolstencroft adopts - academic studies have long established that changes in earnings estimates have some predictive power and investor sentiment is another obvious market factor that is regularly monitored by broking firms.
But the big question when Mr Wolstencroft decided to move over to the "buy side" of the investment business was: would his model stand up to a practical test? When I talked to him at the time of his move, he told me that the model had outperformed the market by an average of 7 per cent a year when back-tested over several years.
At the time I doubted whether reality would prove quite so welcoming. Yet now, three years on, the first results are in - and very positive they are too. Over the three years to March 2004, the fund has outperformed both its benchmark (FTSE's Europe ex-UK index) and its peer group in all three years. Not only that, but the margin of outperformance has not been 7 per cent per annum, but 15 per cent per annum. What's more, this has been achieved with lower than average volatility.
Of course it is important not to get too carried by bald performance figures. Three years of outperformance cannot disguise the fact that investors have not yet made a huge amount of money from the fund. In its first two years, which coincided with the depths of the bear market, the fund lost money and even after three years the absolute return was just 28 per cent. All the absolute gains have come in the market rally that started in March 2003, and the fund fell back again as the market weakened in recent weeks.
In other words, even a highly successful market analyst - and Mr Wolstencroft was regularly voted the best market strategist by fund managers - cannot buck the most powerful directional trends in the market. Nevertheless, the record of his fund has been impressive and will no doubt continue to hoover up funds from both private and professional investors who want exposure to the currently not very highly rated European equity markets. (It helps that the fund has positions in a number of companies from fringe economies in Europe such as Hungary and Greece, where growth and valuations still look attractive). Although the fund has already grown in size from £20m to £240m, it is not yet so big that its competitive advantage will be eroded by liquidity problems, as so often happens with funds that put together an impressive early record.
Apart from saluting Mr Wolstencroft's decision to back his judgment by starting the fund, it is interesting to speculate why the fund has done as well as it has. The fact that it is largely quantitatively driven is clearly one important factor. According to Mr Wolstencroft, about 80 per cent of the fund's outperformance can be attributed to his model and only 20 per cent to the judgmental adjustments that he and his colleague, Peter Saacke, make to the stock selections.
Although the two men boast five economics degrees between them, they cheerfully admit that they try to behave "like idiots" most of the time, to avoid letting their human emotions get in the way of the objective results of their methodology. Not surprisingly, the time when the model performs worst is at major inflection points in the market, such as March 2000 and March 2003. It is on these occasions that Mr Wolstencroft's many years of experience at tracking the performance of the markets and the behaviour of the professional institutions that dominate the market come most in handy.
The other reason why the fund has done so well, I suspect, is that Mr Wolstencroft's model is beautifully attuned to the dynamics of today's investment markets. At a time when the average professionally managed fund turns over its portfolio once a year in a desperate search for small degrees of relative performance, this model clearly captures the key elements in this zero-sum game far more effectively than most.
The flip side of this is that anyone who enters the field is only as good as their last result. It will be interesting to see how Mr Wolstencroft's fund kicks on from its impressive start. Approval from this quarter is probably the kiss of death for any fund manager, but so far I have to concede that he has done all that anyone can ask.
Independent Partners: See how much you could save by switching credit cards. Compare now
elephant appealThe first 23 lots in our charity auction have now gone. But there are 22 more still up for grabs
Dennis Rodman will coach the North Korea basketball team - and is preparing a special birthday treat for 'friend for life' Kim Jong-un
Jennifer Lawrence attacks mass media again over body image
- 1 America's 'virgin births'? One in 200 mothers 'became pregnant without having sex'
- 2 Sun will 'flip upside down' within weeks, says Nasa
- 3 Ian Watkins: Police probed over earlier allegations as paedophile Lostprophets singer sentenced to 35 years for child sex offences
- 4 Christmas comes early: Justin Bieber is 'retiring from music'
- 5 Children evacuated from swimming pool after prosthetic leg mistaken for paedophile
Exclusive: Young people ‘want UK to stay in Europe’: Four in 10 adults aged 18 to 24 are ‘firmly in favour’ of membership, poll shows
You can STILL be jailed for being a republican, government confirms, and it remains illegal to even 'imagine' overthrowing the Queen
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
Fighting back: the woman giving a voice (and 49,999 others) to the victims of sexism - by giving an airing to their horror stories
Tom Daley ‘is gay because his father died’ says UK evangelist
PM denies two child limit for benefits is part of Tory welfare policy
- < Previous
- Next >
iJobs Money & Business
£500 - £550 per day: Cornwallis Elt : Business Analyst Target Operating Mod...
£500 - £680 per day: Harrington Starr: Murex Business Analyst - 1000 CHF per d...
£60000 - £75000 per annum + Bonus and Benefits: Harrington Starr: A leading au...
£25000 - £32000 per annum: Harrington Starr: Junior Business Analyst - Banking...
Day In a Page
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.