Away from the hubbub of the City, 194 miles up the M1, there is an asset management team diligently studying the ins and outs of UK companies.
The Leeds office of investment firm Franklin Templeton has been left to its own devices, trusted to do the best for local clients, and it is a close-knit team that has spent decades honing its processes and thinking.
Manager Richard Bullas joined as a trainee almost immediately out of university and now, 17 years later and Yorkshire accent intact, he has risen through the ranks to manage the firm’s dedicated UK small-cap fund.
“Because we are outside of London we offer something a bit different,” says Bullas. “We’re a little bit out of the bubble and we are outside the City group-think that some can get caught up in.”
In the early noughties, when Bullas first started, it was not Franklin but Rensburg Sheppards’ fund management business. The success of the firm first caught the eye of Investec, before being taken on by Franklin Templeton in a £45m deal, which marked a key moment in the fund’s exposure to a wider market.
“One thing we had always struggled with as a niche boutique in Leeds was trying to get the name out there,” says Bullas. “The reputation and branding was great, and we had the track record and performance, but we didn’t have the clout of someone like Franklin behind us. Our coming on board was the opportunity for us to boost assets.”
It was a not a top-down diktat, however, and the team’s Leeds bubble was left well alone, able to continue as it was in terms of investment and process, but with the help of Franklin’s extensive back-office support.
“The beauty for us in Leeds is we get to keep the team and the same investment process. Franklin Templeton likes to have local teams with their own investment processes, doing what’s suitable for their local markets,” he says.
“From an asset allocation point of view and an investment process we are a single entity doing our own thing. There’s no topdown pressure saying ‘house view is X, you must be doing Y’. We have the freedom to run the funds.”
Seize the moment
The name above the door may have changed but the team has stuck together, with the longevity of staff meaning Bullas is still considered something of a newbie. “I’ve been there 17 years and I’m still the new boy.”
The ‘newbie’ got his big break in 2012 when his mentor Stuart Sharp stood down from managing the Franklin UK Smaller Companies Fund and Bullas stepped up, keen to make the fund his own.
“I was desperate to do it, I knew I would get the opportunity and I was patient. You’ve got to be patient to get the breaks,” he says. “I started with a blank sheet of paper. The fund hadn’t been performing very well and it was quite small, only £18m in size, and had had a difficult period after the credit crisis in ’09. It was a chance for me to turn it around.”
A root-and-branch review of the fund in the summer of 2012 saw Bullas dump half of the 80 stocks it held, laying the groundwork for his high-conviction approach to portfolio construction.
“I made it a core small-cap fund. In the small-cap world you have a remit to go anywhere in the market. Some go mid-cap some go small; I positioned it in the ‘sweet spot’ as I call it. The very small stocks I sold and some of the larger stocks, too.”
The fund’s holdings now mostly have a market cap of between £100m and £1bn. There is some overlap with the mid-cap fund run by Bullas’s colleague Paul Spencer, but he insists it is fundamentally small-cap-focused, unlike other products out there.
“A lot of the peer group do encroach into the FTSE 250 but we like to keep it distinct between small and mid-caps. We have a small overlap of around seven stocks but this is not a mid-cap ‘lookie-likie’,” he says.
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