Managers of the Stewart Investors Latin America fund, which this month reopened among a trio of previously soft-closed funds, Tom Prew and Millar Mathieson have dismissed benchmark discipline in favour of an approach prioritising "integrity" and quality of investee companies.
Speaking to Investment Week ahead of the fund's reopening, Prew and Mathieson outlined the £123m AUM fund's process and why an investee company has to have certain characteristics, with trust paramount among them.
"We have never worried about what is in the index and we have never worried about being divergent from it," said Mathieson. "We have a maximum exposure to countries and sectors to ensure we are adequately diversified, but if we do not believe in something or we cannot find the companies, we are quite willing to have zero percent there."
Prew added: "I do not get nervous about tracking error. If you are not aiming to have significant tracking error, how can you possibly aim to have acceptable long term performance?
"You need to trust the people who own and run a company, otherwise they will be licking their lips and using [coronavirus] as a fabulous, once-in-a-decade opportunity to disadvantage minority shareholders."
Also vital to the businesses the team selects is track record, which demonstrates how a company "behaves under stress", meaning Prew and Matthieson do not have to worry about "lumps and bumps and Black Swans" in the market.
"You will never get it right, and then there will be another one that comes along anyway," Prew explained. "If someone is flogging it on the New York Stock Exchange and ringing the bell, then it is probably not for us for another five years."
The team also avoids stocks with debt in hedged currency, he added, "because half of them blow up because they just do not work and you never know which half until it is too late".
Stewart Investors Latin America has returned 28.9% over five years, beating the MSCI EM Latin America benchmark's returns of 14.9%, but below the sector performance of 35.7%.
A strong track record combined with "integrity" is key to justifying active management fees, according to Prew, who noted "how you actually run your business", "how you run the fund" and whether you are managing the "appropriate amount of money" as important aspects in this respect.