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 the reasons why they decided to invest in the Third Avenue Global Value Fund
We only buy active equity managers in our portfolios, which makes us very different to most of our peers. Of course, one of the main reasons others do not follow this strategy is cost. In a world where everyone is under constant fee pressures, running a ‘traditional’ active fund of funds – that is, without passives and with the usual commonly-held funds – is not fit-for-purpose.
To counteract this problem, we make sure the weighted-average ongoing charges figure (OCF) we pay for our active equity portfolio is 0.5%. This naturally leads us to smaller, newer funds that are largely ignored by the wider fund-buying community due their small stature, perceived lack of track record and, of course, good old-fashioned career risk – also known as ‘fear of being different to the crowd’.
By hunting among these funds, we can secure attractive ‘founder fees’ for our clients by providing these managers with capital earlier on in this journey. A perceived lack of track record is the main criticism of this approach but, in reality, that is not true.
First, we do not buy any old small/new fund – we have a disciplined process behind what we do. Second, we invest in experienced managers as we too need to analyse track records to ensure evidence of excellence. This can be managers who have recently moved firms and are wanting to build a new fund, or foreign managers bringing their strategies to the UK and European market.
‘Sell sunshine, buy rain’
A great example of this is the Third Avenue Global Value fund, managed by Matthew Fine and his team in New York. Third Avenue is a boutique that has managed this strategy for US investors since the early 1990s and they launched their UCITS version in August 2024, which we bought at launch.
They are genuine value managers. As Matthew puts it, he and his team’s job is to ‘sell sunshine and buy grey clouds’, illustrating the contrarian aspect of their approach. They are very bottom-up as well and completely ignore the index. Each of the 25 to 35 stocks they hold in the portfolio is selected via their research-intensive, bottom-up process.
The philosophy behind the fund is to invest in businesses around the world that have strong balance sheets and are trading at a significant discount to what the team deem to be a conservative estimate of fair value. The team believe markets are largely efficient, so the opportunity set for finding stocks that are genuinely mispriced are low – hence the concentrated approach.
Despite being value investors, the team are active backers of businesses and tend to see themselves as long-term owners, meaning they engage with their underlying holdings and have relatively low turnover.
Matthew has spent his entire career at Third Avenue and took over the reins of the portfolio in 2017. Over that time, as you can see below, the strategy has comfortably outperformed value indices and – despite the fact it has had no exposure to mega-cap US technology stocks due to its value process – has even given the wider global equity market a run for its money
“Smaller, newer funds are largely ignored by the wider fund-buying community due their small stature, perceived lack of track record and, of course, good old-fashioned career risk – also known as ‘fear of being different to the crowd’.
Source: Morningstar, 19/09/17 to 30/11/26 in GBP
The timing of the UCITS launch was unfortunate, with the fourth quarter of 2024 characterised by US equities (particularly high-growth ones) flying on Trump’s election. With the fund underweight US equities (and not owning the likes of the Magnificent Seven) on valuations grounds, its first few months were very tough on a relative basis. The team have turned the tide in 2025, however, with very strong returns versus both value indices and the wider market.
The fund is currently small – at some £5m, at the time of writing – which means we genuinely cannot buy enough of this fund in our UCITS strategies due to the 25% ownership constraints. That said, the team run around $950m (£712m) in the strategy as a whole and we expect the UCITS version to grow a lot from here.
Exceptional value managers are a rare breed but we feel Matthew has the makings of one. His track record on the strategy is very strong and is illustrative of a value manager who has been able to generate alpha, thanks to the bottom-up approach, via stock-specific risk in the face of a sizable stylistic headwind – that is, the domination of mega-cap growth stocks.
Their focus on strong balance sheets has clearly helped the team avoid value traps, while a focus on fundamentals has meant they have been able to eke out returns when they have had little right to do so.
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.
