Evenlode’s Elliott, Knoedler and Dyer: Why we don’t ‘buy low, sell high’ in our funds

Evenlode’s Global Equity team discusses launching during the pandemic, severing emotion from sell discipline, and why investing in brands is ‘high maintenance’

Cristina Dyer, James Knoedler, Chris Elliott 2023
(L-R): Cristina Dyer, James Knoedler, Chris Elliott


“Launching our Global Equity fund during the pandemic was a really great experience,” Evenlode fund manager Chris Elliott told Portfolio Adviser. “We wanted to build a portfolio that could withstand a wide range of macroeconomic events and scenarios – and we have had quite a few of those since 2020. We have had the pandemic, inflation, and a very strong year for the fund as well.”

The £251m Evenlode Global Equity Fund was launched three years ago in mid-July 2020 – a few months before portfolio manager James Knoedler was brought into the fold from Independent Franchise Partners to co-run the mandate.

Since launch to time of writing (2 August) the fund has comfortably found itself in the top quartile for its total return of 37.7% – almost 10 percentage points more than its average peer in the IA Global sector. It also boasts a top-quartile Sharpe ratio, which measures excess return generated per unit of risk, as well as a top-quartile Sortino ratio, which also measures risk-adjusted returns without penalising upside volatility.  

And yet the portfolio is significantly smaller than the firm’s flagship UK-focused TB Evenlode Income Fund (launched in October 2009) and TB Evenlode Global Equity Income Fund (launched in November 2017) which have assets under management of £3.4bn and £1.8bn respectively.

“In July 2020, we seeded the portfolio with our internal money,” Elliott explained. “It wasn’t available to external investors until May 2021 and we weren’t able to go out and see investors anyway – it would have all been done via [Microsoft] Teams, which is not necessarily the best way to market a new fund.

“This means the fund’s growth slowed in pace at first – and has perhaps even done so beyond May 2021.”

The fund was launched as the third product in Evenlode’s stable because, as the global equity income team continued their company research, they were finding increasingly compelling investment opportunities which aligned with their investment philosophy – they just didn’t pay a dividend and had little-to-no likelihood of ever doing so.

“We put those in a bag, kept a long list of those companies and that really formed the basis for this fund, which we later launched in 2020,” Elliott said.

With more than 16 years of experience as an investment analyst and consultant, James Knoedler was hired by Evenlode to co-create and manage the new portfolio, just weeks after the UK’s first lockdown.

“We were already planning on [launching the fund], and when we looked at the valuation environment there were a lot of high-quality names at attractive prices,” Elliott added. “It was a very good opportunity for us to put money to work and test out our thesis.”

Beneath the bonnet

The thesis in question, Knoedler explained, is to buy companies which can set their own prices and “make their own weather”. This typically includes companies with difficult-to-replicate competitive advantages, high barriers to entry and – key – is to ensure they don’t deteriorate in quality over time.

See also: “Q&A with Evenlode’s Chris Elliott and James Knoedler: Compounding cashflows and unmet needs

TB Evenlode Global Equity has a concentrated portfolio of 33 stocks and a very low turnover, with the aim of outperforming its MSCI World benchmark over rolling five-year periods.

But despite few new entries and exits in the portfolio, the managers’ time is spent monitoring existing positions and making sure companies don’t lose their quality bias over the long term.

“The market tends to assume that all companies lose their competitive advantage at some point. An example would be Tesla; it used to be very differentiated but now lots of companies sell electric cars – that competitive advantage is declining,” Knoedler reasoned. “This is a familiar story and we have seen it thousands of times across different companies.

“But our research shows there are certain categories which are hard to compete with – whatever their advantage is – so those businesses are stickier and more resilient than people think. It’s about finding the companies which defy the assumptions of the market, that they will lose their advantage.”

For example, the fund’s second-largest holding at 6.8% of the portfolio is Mastercard, which Knoedler describes as virtually a utility company.

“They are fairly ubiquitous – every merchant will accept them, and they accept them because they know most consumers will have them in their pocket,” Knoedler said. “That’s what it boils down to – for every merchant and every extra consumer who uses them, they become more valuable.

“That is a network effect which, historically, has proven very difficult to disrupt.”

The team also favours brands, with the likes of Heineken, Diago, Pernot Ricard and L’Oréal in the fund’s top 20 holdings.

They are not an easy win, however, with Knoedler likening them to owning a garden that requires a lot of watering – “they require a huge amount of reinvestment, otherwise they wither and die”.

One of the team’s favourite luxury brand holdings has been Hermès, which no longer holds a place in the top list of holdings on account of it performing so well over the last year or so, and the team subsequently having to trim their position.

“It is an example of a company that spends a lot of money on the brand, and on the quality of the products themselves,” Knoedler said. “It is comfortable having a huge liability of returns and repairs – It offers a lifetime guarantee on most of its products. The products are mostly handmade in Western Europe.

“Also, it is an example of fashion brands needing to own all of the shops themselves because, if they sell their merchandise on to a third party, there is a risk that the third party is just going to jumble them up on a shelf, not look after them properly, or be so desperate for cash that they sell them at 50% or 70% off. That is the kind of thing which is really destructive to a brand.”

Sell discipline

This means the team has to work hard not to stay too wedded to a stock – especially if it has been a holding in the portfolio for a long time.

One way Evenlode attempts to combat this is through ‘bull-bear’ meetings on every company holding every six months.

“The person who assigns the company is normally a little bit sadistic on it,” Elliott joked. “So, if James particularly loves one company, he’ll get the bear case. And if I particularly hate one, I’ll definitely get the bull case.

“We make sure we are really testing your own beliefs. In terms of research, we’re always challenging companies. We don’t like the idea of there being good companies and bad companies; we generally think most companies have good and bad elements. This means we have to keep re-challenging the risk case on every single business.”

An important part of the process is to ensure analysts are always fully involved in the decision-making process, and that the buck does not just stop at the fund managers, according to analyst Cristina Dyer, who joined the Evenlode team in October 2020.

“The final decision on the portfolios is always the fund managers, but the fund managers are very willing to listen to everyone’s opinion, and every analyst’s opinion,” she explained. “When I joined, I was learning about the process and how to analyse companies, and [the managers] were always very encouraging, in terms of every contribution that everyone in the team would bring.

“It’s building that process into the team and allowing everyone to be able to challenge any decision, which allows us to be successful.”

For example, when Evenlode Global Equity sold out of luxury brand LVMH in June this year, Dyer used her background as a clinical pharmacist to re-allocate the capital – in part – to Johnson & Johnson and US medical device company Medtronic.

“[Johnson & Johnson] is very well diversified. With big pharma companies you often run the risk of a patent theft, and they often have one or two drugs which contribute a very high percentage of their overall sales,” she said.

“While the patents of some of its assets are expiring in the next 10 years, it has a very strong and well diversified pipeline of new drugs coming through to fill that gap.

“Consensus on their pipeline across the market seems to be quite negative, and I don’t think the potential upside of the business is very well understood by other investors.”

Medtronic was also added to the portfolio account of its diversification benefits.

“It is involved in very important areas of medicine, such as stents that go into your heart, and pacemakers – things that you really do not want to go wrong, and which you certainly are not going to ‘cheap out’ on,” Dyers explained.

The third company that capital was re-allocated to was Germany-headquartered Beiersdorf, which is the parent company of skincare brand Nivea. 

Elliott said: “It is a fantastic company which has done very well, with high levels of reinvestment. There is a ‘halo effect’ around the Nivia brand, which has helped it to grow revenue over the last few years.”

Buy low, sell high?

The fund manager pointed out that trimming or exiting positions within the fund is not always pre-planned, and sometimes takes the team by surprise.

“We entered Hermes in March last year, and definitely increased our LVMH position at the same time,” Elliott explained.

“We anticipate that, over time, the compounding of businesses and cash flow is what will drive earnings. That has been our experience. It is not going to be buying companies when they are cheap and selling them when they’re expensive.

“However, having that valuation discipline does push you out of positions when they get very expensive. But when you look at Johnson & Johnson, and Beiersdorf, they’re pretty good value according to our system. They’re not screamingly cheap. The key reason we bought them is our confidence that they are set up to compound their earnings.”

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