In the second of a new 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 the reasons why they decided to invest in the Merlin Fidelis Emerging Markets Fund
We firmly believe boutique investment firms – when done right and managed by the right people – offer a distinct ‘edge’ of agility, alignment and a deep-rooted commitment to their craft. The Merlin Fidelis Emerging Markets Fund, which we bought earlier this year, exemplifies this ethos.
Founded by Aaron Macksey and Sam Dyson, Merlin Fidelis is a boutique firm, based in Hong Kong, and the duo’s decision to relocate from Australia and launch the business with their own capital speaks volumes about their conviction and alignment with investors.
They are experienced managers, having run a similar strategy at Maple-Brown Abbott in Sydney between 2008 and 2019. Having tired of working at a large firm, they made the decision to set-up on their own – with boots-on-the-ground access to Asia.
Relocating to Hong Kong in 2020 caused a few headaches – remember that virus? – and they had to scramble to launch a Cayman Island version of the strategy during the summer of that year. They launched the UCITS version this year, which is what we own.
The fund itself is an emerging markets strategy built on a ‘pragmatic value’ philosophy – that is to say, while it leans towards value, the managers are not dogmatic. They will own ‘expensive’ stocks, if the upside justifies it, and ‘cheap’ ones if the downside is limited.
We like this flexibility – and the process, which centres on a probability-weighted scenario-analysis framework. For each stock, they construct bull and bear cases, assign probabilities and use this to determine expected returns.
Risk/reward signal strength
This bottom-up approach is complemented by dynamic position-sizing. The managers actively adjust weightings based on the strength of the risk/reward signal, with position sizes ranging from 20 basis points to above 4%. Importantly, they are not benchmark-driven. While they are aware of what is going on in the index, it does not impact decision-making, with the portfolio constructed independently and macro factors considered only at the stock level.
From a portfolio construction standpoint, the fund typically holds between 50 and 100 stocks, with turnover ranging from 10% to 40% depending on market conditions. The fund is sector and country agnostic, with the flexibility to zero-weight countries or sectors, if it is deemed warranted.
As you can see from the following chart, performance has been strong – particularly since the launch of the firm’s Cayman strategy in 2020. The strategy has consistently outperformed its style benchmark and the broader emerging markets index over that time, enjoying a particularly strong 2025 (so far) thanks in large part to their Chinese tech exposure.
“The Merlin Fidelis duo’s decision to relocate from Australia to Hong Kong and launch the business with their own capital speaks volumes about their conviction and alignment with investors.
Source: Morningstar, 02/06/020 to 30/09/25 in GBP. Note: Performance shown is an amalgamation of the Cayman Island strategy and the UCITS as the latter was launched in April this year
In terms of portfolio fit, the fund adds stylistic diversification to our emerging markets exposure. Our portfolio had a mild bias towards quality growth so Merlin Fidelis offers a complementary tilt towards value.
While the fund will undoubtedly perform best in value-led markets – and would be up against it if quality growth stocks were leading the market – we like the flexible and dynamic approach as it means this is a fund that, driven by stock selection, could tread its own path.
We also appreciate the boutique nature of the firm. Aaron and Sam are not just managers – they are owners, investors and stewards of the strategy. Their deep research memory, institutional decision-making process and willingness to act decisively set them apart.
As a one-strategy shop, their focus is undiluted and their alignment with investors is clear. As such, Merlin Fidelis Emerging Markets embodies many of the qualities we look for in a Fox investment. It is a fund we believe has ‘GOAT’ potential and one that could play a meaningful role in our portfolios for years to come.
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
Essentially, we are looking for managers who are absolutely obsessed with the way they invest, disciplined, intensely ‘bottom-up’ in their approach and with the courage to be different to the herd when they have the conviction to do so. This is why we tend to focus on boutiques as it is the type of corporate structure that is best suited to fostering independently-minded stockpickers. You need collective ‘skin in the game’ and, importantly, patience to stick it out when a strategy inevitably underperforms.
