Nutshell Growth
A high-conviction, concentrated, pragmatic fund investing in exceptional growth companies. What makes this fund different is the heavy quantitative input which guides the manager. The fund also has a much higher turnover of holdings than is typical of other quality growth funds.
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Our Opinion
This is an innovative and original fund. Mark has come into fund management from a slightly unconventional route, having previously had a successful career as a trader. However, we view this as a positive and we like the new ideas Mark has brought. What makes this fund particularly interesting is its rare combination of pragmatism, given Mark’s trading background and academic rigour. The quant process is grounded in logical academic reasoning and the fund has delivered thus far. We like the fund’s nimbleness and its ability to quickly reposition. It is firmly on our radar as an exciting future prospect.
Fund Manager
Mark Ellis, Fund manager
Mark Ellis is both chief executive and chief investment officer of Nutshell and the lead investment manager on this fund. He has a 25-year history of trading and investing. After graduating from the London School of Economics, Mark became a derivatives trader at NatWest Markets. He then moved to Bear Sterns and ran a desk of traders. After a successful career as a trader, Mark took a couple of years off to go travelling. He returned to undertake an MSC in Finance from the Cass Business School and began to design a new investment process which became the basis for this fund. After graduating from Cass with Distinction, and having had his dissertation published in the Journal of Asset Management, Mark used his own account to provide the proof of concept for this fund. After a successful year, Mark launched Nutshell Asset Management to market this strategy in November 2019.
Risk
The fund is concentrated with around 30 holdings but has done work to ensure the fund is sufficiently diversified. This is a high conviction active fund and performance is likely to differ greatly from a global equity benchmark. The fund has a growth style bias and may suffer if this style goes out of favour, however this is somewhat mitigated by the funds valuation discipline. The fund is generally a little more volatile than the average fund in the IA Global sector.
Company Description
Nutshell is a boutique investment house founded by Mark Ellis in November 2019. Having proven his investment strategy for a year, the Nutshell UCITS fund was launched in 2020. Nutshell was backed in 2019 by Michael Spencer, Baron Spencer of Alresford and founder of ICAP, one of the UK’s most recognisable financiers. The Nutshell Growth fund is the main part of the Nutshell business, although it does run some alternative segregated accounts for institutions.
Investment process
The fund’s philosophy is that certain factors are consistently underappreciated by the market - such as high returns on equity, high profit margins and momentum. From their own research and academic studies, the team believe high profitability and quality are drivers of future performance.
In their view, the traditional stock-picking method is outdated. Analyst reports are quickly dated and suffer from a range of biases. The fund attempts to be disciplined and unemotional. They do not get attached to companies, management teams or stories. The fund is very reactive and given Mark’s background in trading, it is not afraid to trade quickly on new information. They believe it is a myth that trading is bad.
The fund is a high-conviction global growth portfolio, but it also has a strong valuation discipline. The fund is strongly guided by a series of quantitative inputs which the manager relies on heavily before undertaking his own work. They start with a deep data extraction from 10,000 publicly listed companies. Stocks must meet minimum hurdles for return on invested capital, profit margin and market cap. This reduces the universe to 600 stocks. The fund then scores for 30 financial and 20 non-financial metrics using its in-house factor-based model.
Rather than screen, like most asset managers, they score stocks based on their factors. Once the highest scoring stocks are identified, the manager will undertake further qualitative checks, including a red-flag checklist. The trading focus of the portfolio sees the team re-run their screens twice-per-month from scratch – this leads to higher turnover as they often find new information.
The final portfolio is concentrated with around 30 names. Although it can invest in companies of any size, it typically has a bias toward large and mega-caps.
Risk
The fund is concentrated with around 30 holdings but has done work to ensure the fund is sufficiently diversified. This is a high conviction active fund and performance is likely to differ greatly from a global equity benchmark. The fund has a growth style bias and may suffer if this style goes out of favour, however this is somewhat mitigated by the funds valuation discipline. The fund is generally a little more volatile than the average fund in the IA Global sector.
ESG
ESG - Integrated
ESG factors have been incorporated into the fund since its inception. The Nutshell team argue that research shows that companies with strong ESG credentials tend to outperform those without. The fund starts by excluding companies involved in controversial activities. This includes; fossil fuels, fracking, gambling, hazardous waste, tobacco, adult entertainment, arms and munitions, child labour and emissions. The fund also runs positive screens for clean energy, diversity, carbon intensity, pollution control and more. These are supplemented with third-party ESG ratings.
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