Boutique Critique: Palm Harbour Global Value

In the latest in our series taking a closer look at boutique investment houses and the strategies they run, Alex Paget explains what draws the Downing Fox multi-asset fund range he runs with Simon Evan-Cook to this particular type of corporate structure and, in this instance, to the Palm Harbour Global Value Fund

We want to own a certain type of active manager in our portfolios – and since we felt no word existed that fully encapsulated the kind of independently-minded stockpickers we are after, we came with our own: ‘bellitious’.

To be bellitious, you genuinely need to think independently. You need to be principled, obsessed with the way in which you invest (in other words your personality needs to suit your philosophy and process), laser-focused on what you want to achieve and stubborn (enough) to stick to your guns – even if it means you look uncomfortably different to the crowd. Not overly so, however, as you do need to be able to accept when you are just plain wrong.

Our search for this type of character means we do have a bias for boutique firms. We do own funds run by bigger companies, of course – but those bellitous personalities can be up against it in certain large organisations where they are likely to encounter greater bureaucracy, risk committees (where the pressure may be to rein in their active risk at the wrong time) and people referring to a strategy as a product rather than a fund.

In a world where, until recently, looking like an index has been a safer and, let’s face it, more lucrative way to invest than being different, these types of bellitious characters are becoming harder to find. This is why we were so drawn to Peter Smith, who founded his own boutique and manages its sole strategy, the Palm Harbour Global Value fund.

Peter has an interesting origin story. He is a Texan who took a liking to stockmarkets at an early age. He studied international business at university and decided to travel – and, having learnt basic German, he moved there to take up a role as a European equity analyst at Commerzbank.

He built up decent understanding of the European market and moved to London to enrol in the value investing programme at London Business School. Through this, he joined a hedge fund and became more aware of his future mentor, Francisco García Paramés, who is a big deal in Spain – akin to an Anthony Bolton in the UK.

Peter managed to get in contact with Francisco and would regularly pitch him stocks. After a while – and potentially to make him stop! – Francisco offered him a job at Cobas in Spain, but this was not what Peter was after.

He wanted to set up his own fund because he passionately believed in what he wanted to do and was after seed capital. Francisco was impressed and became a partner in Palm Harbour Capital, allowing Peter to get his fund up and running in 2019.

Smallcap value strategy

The fund is a smallcap value strategy with a healthy bias towards continental European stocks. Not the best place to have invested since 2019, then – but more on that later.

Peter has built a process anchored in deep fundamental research and an unwavering belief that ‘good things happen to companies that generate cash’. His philosophy centres on determining a company’s intrinsic value and only investing when its shares trade at a meaningful discount. This creates a natural focus on quality businesses with robust cash generation, low downside risk and a clear margin of safety.

Peter’s approach is intensely bottom-up, involving exhaustive analysis and an owner-operator-mindset. He takes the long view, favouring smallcap opportunities where mispricing and behavioural inefficiencies present the richest hunting ground. Portfolio construction is deliberate and concentrated, typically holding 25 to 40 names, reflecting his conviction and the depth of his and his team’s research.

Independent thinking is central to his process: he ignores macro noise and the make-up of the index, avoids fashionable market narratives and sticks patiently to his knitting, which is to deliver a 15% annual return, irrespective of what the index is up to. The result is a distinctive, high active share portfolio that expresses its manager’s disciplined value philosophy with clarity and consistency.

To get a strategy like this up-and-running during an era where you predominately wanted to own large, growth companies – and preferably ones in the US – would be a challenge for anyone but especially so for a small firm such as Palm Harbour that lacks the marketing clout. The fund is starting to grow, however, and this is due to Peter’s impressive track record.

Performance of Palm Harbour Global Value against IA sector and its xP