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Why Size does Matter


We also believe that size matters. But we think it pays to be smaller.

Because received wisdom has it that small funds have higher trading costs and worse, they are illiquid and pose a fundamental risk to their clients’ portfolios.

We often get told by professional fund buyers, by wealth managers and IFAs, that they really like the Nutshell Growth strategy. But that they require the Fund “to be larger before they can invest”.

This sentiment is more common than not. In fact, it is the standard position of the vast majority of wealth managers. They won’t consider a Fund until it is bigger, typically more than £100m. An informal formal rule.

Business Integrity

Funds and fund managers that were household names have gone bust ignominiously in the very recent past. Therefore, we understand that prospective investors in the Growth Fund are cautious when presented with a relatively new and small fund like ours. So, we should stress at the outset that Nutshell does not represent a business risk.

We began trading the Nutshell Growth strategy in January 2019. As of 27th February 2024, we have been established for more than five years, have annualised >12% pa and have outperformed the majority of our IA Global sector peers over 6m, 1yr, 3yrs and 5yrs (Source: Trustnet). Not bad returns over a period that includes not one but two bear markets.

We were seeded and are supported by the family office of Michael Spencer. Not only is he invested in the Growth Fund, but he is a shareholder in Nutshell AM Ltd. He recently publicly bet Terry Smith that the Nutshell Growth Fund would outperform FundSmith in 2024.

Since 2019, we have graduated from managed account seed capital to a business that runs ~£40million and has clients from as far afield as Hong Kong and the UAE. We have a Finnish endowment invested with us. We have a US institutional investor. At last count, we have 14 different UK Wealth Management firms invested with us.

Indeed, for our size, we have a very diversified investor base that includes a lot of direct retail money. This is because the Fund is available on 23 different investment platforms, including Hargreaves Lansdown, AJ Bell, Interactive Investor and Fidelity.

Nutshell Asset Management is here to stay and will aim to continue to provide our investors with the kind of strong and differentiated returns that have allowed us to outperform the majority of our peers over the long-term.*

Highly Liquid

Regarding the perceived illiquidity of small funds that is often true of small cap, sector specific, or funds investing in private assets, we would emphasise that the Nutshell Growth strategy has historically been, and will continue to be, one of the most liquid funds on the market. Should we need to, we could sell down the entire portfolio today and return cash to investors immediately. This is down not just to our asset class but to how we build the portfolio…

Part of our investment process involves us ‘stress testing’ companies: interrogating their performance, their share price, their EPS during historic bear markets. We do this because we want to have an idea of how they will fare in a drawdown. We like high quality resilient companies. And because we put capital preservation factors at the heart of the process, it follows that the more historic data we have on a company, the more informed we can be and the more confident in its likely robustness going forward. We prefer companies that have been through market turmoil, survived, even prospered. For this reason, we tend to prefer large and mega-cap companies: the proven winners.

The historic average market capitalisation of a company in our portfolio is greater than $200bn. This is larger than almost all our peers. And it literally makes us more liquid than these bigger, longer-established peers. Currently, we can liquidate the entirety of our portfolio and be in cash within one day, and without enforcing a dilution levy.

Far from our small size making us illiquid, the Nutshell Growth Fund is in fact highly liquid.

Capturing Value

Value and companies’ valuations are very important to us. We fully recalibrate the Nutshell Growth Fund twice a month. This is the equivalent of investing the Fund from scratch. And it acts as an invaluable reset. It ensures that we regularly re-optimise the portfolio: redeploying capital to the highest quality companies for the most reasonable valuations possible.

This results in a relatively cheaper portfolio vs peers (our historic P/E is around 23x; cheap for a growth fund). Another advantage of having a relatively cheap portfolio is that we are better able to defend capital in risk-off environments when peers often suffer for having held on to lofty stocks that have become overvalued.

Being small means we are agile, and it allows us to capture value that larger peers cannot.

Generating Alpha

More than just being active managers, we consider ourselves proactive managers. Not only do we recalibrate the fund bimonthly, but we trade almost daily, primarily on companies’ valuations. Partly, this is our pedigree in hedge funds – Mark previously worked at the hedge fund Symmetry, a Millenium spin-off. But mostly this is down to our desire and ability to pick up on intraday price moves that our peers, who often move more slowly, miss. Again, this is additive to our returns.

Our peers’ traditional approach to stock-picking is fraught with potential human error and subjectivity, including binary decisions on what to buy/sell, when, and in what size. For instance, once they have made the decision to buy a certain company, it may take them days or even weeks to execute the trade, such is their size. This impact cost can be harmful to investors.

Instead, the objectivity integral to the Nutshell Growth process coupled with our small size, makes our methodology rigorous, repeatable, and fast. We are able to generate alpha that our peers have neither the inclination nor the ability to.

Being small gives us opportunities they can never have – they are simply too unwieldy.

Founder Led

Small asset managers benefit from another feature that many larger managers cannot: they are founder led. Mark Ellis has been working on the themes, process and model behind the Nutshell Growth Fund over the course of a 25+ year career in investment. When he launched the Growth strategy in January 2019, he did so with the help of Michael Spencer’s seed capital and all of his own liquid assets (and his children’s!) Mark is the CIO and lead portfolio manager of the Nutshell Growth Fund. Not all larger funds have the skin in the game that Nutshell has.

By Alistair Mackenzie,

Director of Business Development

*  Nutshell Growth Fund vs. IA Global Peers, over 6m, 1yr, 3yrs and 5yrs (as at 27/2/24) Source: Trustnet

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