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 Coeli European Fund
No single ingredient makes a great fund manager. If one existed, everyone who tried their hand at picking stocks would be an Anthony Bolton. Our job as fund selectors is to look to find these greats – and our view is, while there may be no defining trait, there are certain aspects that separate the best from the rest.
Outside of manager skill, there are a few important aspects. Support is vital. By this we mean that, as active managers will always go through periods of underperformance, potential ‘GOATs’ – that is, greatest of all time – need a patient, supportive home that allows them to stick to their convictions and not be forced into capitulating at exactly the wrong time. Then there is alignment – whether it is skin or soul in the game – where the manager is heavily invested, both personally and emotionally.
It is for these two reasons that we are such fans of boutiques, as they are usually firms where you find these two aspects in abundance. You also need a level of assets under management that is going to allow you to make the most of your potential. There are many examples of GOATs who were later hamstrung by their own success and the weight of money it led to.
On the skill side of things, we think there are two key elements. The first is fundamentals. Put simply, this is all about assessing whether a stock is of high enough quality, or cheap enough, to justify investment. Being good at analysing a company does not automatically make a GOAT, but it is a prerequisite.
Tactical element
Arguably more important, though, is the tactical element of investing. We call this the ‘Dark Arts’ of fund management and it covers a variety of aspects around portfolio construction, timing and position management. It is about not just finding a good investment but maximising the opportunity by knowing when to own it and how much of it to own.
A number of managers in our portfolio have mastered these Dark Arts – and we believe one of our latest additions has the right ingredients too. The fund is Coeli European, a concentrated, all-cap pan-European fund managed by Mikael Petersson and Fredrik Östlind.
Having earned his stripes at Lansdowne Partners, Petersson set up the fund in 2018 through Swedish boutique platform Coeli. He credits his time at Lansdowne with shaping the disciplined approach he still uses today and, after stints in Switzerland and back in his native Sweden, he eventually built the strategy we know now, supported by Östlind as analyst.
The fund itself is genuinely concentrated, holding around 20 to 25 stocks, with the team hunting for businesses they consider ‘misunderstood’ by the wider market – companies trading below their true worth, where management can act as a catalyst to unlock value.
“The ‘Dark Arts’ of fund management cover a variety of aspects around portfolio construction, timing and position management.
While the core names he holds tend to stay in the portfolio for years, Petersson is constantly active in how those positions are sized – trading around them as conviction and valuations shift.”
Petersson splits his ideas into three buckets: sum-of-the-parts situations, where a poor corporate structure masks underlying value; restructurings, where new management or sharper capital discipline can transform a business; and out-and-out growth stories, where strong companies can reinvest cash at attractive rates for years to come.
That is the fundamental side. What stood out to us, though, is how the team embraces those Dark Arts. Though fundamentally long-term, Petersson is happy to trade actively around names, topping up on weakness, trimming into strength and using block trades to move efficiently in and out of stocks. While the core names he holds tend to stay in the portfolio for years, Petersson is constantly active in how those positions are sized – trading around them as conviction and valuations shift.
We also like that this is a genuinely active, go-anywhere portfolio, spanning all market capitalisations with a tilt towards mid and smallcaps – and with limited overlap with our existing holdings. There is a refreshing absence of dogma about value versus growth in the team’s approach and this has led to strong performance.
The fund itself has a track record going back to 2018 – although it became a long-only strategy in 2023 – and, as you can see below, has delivered very impressive returns despite being a predominately small and midcap fund during a period where megacaps have dominated.
Obviously, there are times where the fund has struggled. Coeli European had its toughest stretch in 2021/22, when smaller, less liquid names fell hard, and the team has since deliberately shifted up the market-cap spectrum, trading some of that explosive upside for a steadier ride. It also means the fund will likely lag if markets are led by megacaps, or if we see a sharp, indiscriminate sell-off.
Nevertheless, for investors after a concentrated, all-cap European fund run by an experienced manager who treats portfolio construction every bit as seriously as stock selection, Coeli European ticks an awful lot of boxes. It is why we are excited to have it in our portfolios.
Alex Paget is a fund manager at Downing Fund Managers
Wanted: ‘Bellitious’ fund managers
Our work sees us constantly on the hunt for what we call ‘bellitious’ fund managers – and if you have not come across the word before, that is because we made it up. Our reason for doing so? There is not a current word or phrase out there that adequately defines the types of investors we want to own in our portfolio.
Bellitious (adj.)
[bell-ish-uhs]
Driven to fight or endure great discomfort to follow one’s conscience; willing to break laws, rules or social norms in order to uphold one’s inner sense of what is right.
From belligerent/bellicose: being inclined to fight; and conscientious: being governed by conscience
