He said in an updated note on the £40m fund that year-to-date performance of the fund had been weak, with the fund down 5.8% compared to a rise of 9.9% in the MSCI Europe Index and of 9.4% in the average European long-short equity fund.
This follows a strong year in 2011 when managers Gary West and James Inglis-Jones delivered 10.2%, compared to -13.8% and an average of -16.5% from its peers.
"It is not unusual for the strategy to perform poorly during strong recoveries in equity markets," explained Gilligan, "The philosophy which underpins the investment process is based on identifying mistakes made by the company managers in capital allocation decisions and by investors in forming earnings expectations.
"The portfolio managers use cashflow-based metrics in an attempt to get a more reliable indication of future profitability and to assess the value the market is placing on that profitability."
Gilligan added that companies with poor cashflow characteristics can often perform well during periods where markets are driven by macro events, which is what has been seen since the ECB injected a vast amount of liquidity into the system with its long-term refinancing operation (LTRO).
He concluded, "The longer term performance record of the strategy supports the managers’ ability to capitalise on this mismatch. Furthermore, the recent poor performance run is consistent with the very long term return profile from this strategy. We would use the current poor performance patch to add exposure and we reiterate our buy stance."