A: Not really. The more people involved in the decisions, the less interested we are in the firm. We like to find people who have autonomy and are able to make decision quickly. We don’t think that the firms run by a committee deliver as good results as those who are backed by one or two individuals. The size of the team is not really essential but we’d rather have a small team and we prefer small firms.

However, we have to avoid very small firms because we can’t hold too high proportion of anybody’s fund. So we have to ensure a minimum size for liquidity reasons because we need to know that if we want to sell it, that won’t cause any problems for us or for them. Our limit is 10%, but in reality we wouldn’t hold more than 5% of any fund.

Q:  Can you describe the 14 strategies of the funds in your current mix?

A: We differ a lot from what you would call a traditional growth portfolio. The main holdings, or 50% of the fund, are within the UK, so we have seven UK funds. At this part of the cycle we aim to provide more stable performance, so the majority of them are managers who pick out stocks returning high dividends.

We feel that’s the right strategy for this environment because when interest rates rise, a lot of people become more defensive and will look for companies paying dividends. We have a few European funds, mainly income oriented, and that’s a continuation of the UK strategy.

We have a big overweight in Asia because that’s one of our preferred investment areas at the moment. As there’s strong correlation between the US and the Far East markets, currently Asia looks like a better investment to us. With the US being heavily in debt to the Far East, we believe that this is the right type of environment for holding Asian stocks.

Q:  Since you have seven managers in the UK, do you care about overlaps and being heavily invested in certain stocks?

A: We absolutely care about overlaps because the reason for holding seven funds is diversification, so we try to avoid combing funds with similar styles. For instance, one of the funds is a purely mid-cap fund and we have only one mid-cap style fund in the portfolio. Two of the funds are income funds but they have quite different approaches to that market. We also have a special situation fund, whose turnover is very high and is looking to profit through a trading advantage rather than through a long term ‘buy and hold’ structure. But all the UK funds to some extent still correlate with the FTSE All Share Index. So whatever funds you’ve got in the UK, to some extent there’s going to be an overlap.

We measure our performance against the Investment Management Association Balanced Managed Sector.

Q:  What is your sell discipline? How do you decide to sell a fund?

A: There are two main reasons for selling a fund. We give every fund in the portfolio a benchmark and if it doesn’t meet that benchmark, it comes under review. If it’s under review for too long, then we’ll sell it. So, one of the reasons to sell a fund would be if we don’t like its performance. The second reason is if our top-down view changes and makes that fund unusable, even if it is performing very well against the benchmark. For example, we sold a U.S. fund because we had a negative top-down view, not because of the fund’s performance.

Every Tuesday we have formal meetings and we always publish the notes on our website. So investors can see what our themes are, how we’re implementing those themes, as well as any changes that might affect our portfolios.

There are no hard rules, but if a fund underperforms for a week, we would watch it without mentioning it in the minutes. If it underperforms for more than four weeks, then we make sure that we understand why and, more often than not, we’ll sell it.

Q:  What type of risks are you cautious about and how do you handle them?

A: Risk is always a difficult question in terms of what it really means and how best to manage it. We believe that the main risk is losing money in absolute terms. Sometimes managers think of risk in terms of performance relative to the market, but a client may not see it that way. Even if you lose 10% when the market loses 20%, all that a client knows is that he has less money than originally invested.

We consider the lowest risk to be cash, because cash can’t lose money. Bonds are the next least risky investment, then probably would be the utility companies, which tend to give high dividends and are less sensitive to the major market indexes. Next are the large cap stocks in the U.K. and the U.S., and then in Europe. The highest is the risk in the emerging markets.

Calculating the risk on this basis, we then select the funds that are slightly below average on that scale to keep the overall fund risk within the 3 to 4 range on the scale of 1 to 10.

Q:  What do you think differentiates your fund from your peers?

A: Our company has a long history in the markets, going back to 1843 and the foundation of the Birmingham stock exchange, as well as experience as independent financial advisors. In 1992 we began developing our own products instead of using third-party products for our client base. Then we started distributing the funds nationally through a variety of independent financial advisors. Now we do very little direct client work as we’ve become providers to the IFA community, and we focus on the core aspect of managing and designing the product. But because of our IFA background, it’s easier for us to understand why the products would appeal to the IFA community and their clients.