Quality investors have faced one of their toughest periods in decades, but volatile markets can also create opportunities. In a recent interview with FundCalibre, Mark Ellis, manager of the Nutshell Growth fund, explores a more active approach to quality growth investing.
In the interview, Mark tells the FundCalibre team how the fund uses intraday price movements to adjust positions quickly as expected returns change.
Also discussed is the shifting balance between perceived AI winners and losers, why semiconductor companies have recently become more attractive, and the importance of valuation alongside traditional quality measures.
The interview finishes with why high-quality businesses are currently available at unusual discounts, the outlook for US equities and why short-term market shocks can provide opportunities to redeploy capital.
Why you should listen to the interview: Manager Mark Ellis explores a dynamic approach to quality investing, where valuations, expected returns and new information constantly reshape the portfolio.
He also explains why recent volatility has created an unusual opportunity to buy highly profitable businesses at attractive prices.
This interview was recorded on 27 October 2026. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
Why quality doesn’t have to mean buy and hold
“Like a lot of quality investors, our process looks at over 40 different characteristics of companies, and the majority of those are quality characteristics.
“So we look at high margins, high return on invested capital, moat businesses, but we also really look at stability of those numbers as well. We like a long track record of stable margins, stable high margins, stable high return on invested capital.
“But unlike a lot of my peers who buy and hold forever, we have a big emphasis on valuation and expected return. So with all this volatility, these stocks are moving up and down 10–20% intramonth, and we’re managing to capture those changes in valuation, changes in expected return.
“If you look at what happened in the first quarter of the year, you were getting semiconductors versus software. Virtually every other day, semiconductors would be up 5% and software would be down 5%.
“We were able to capitalise on those intraday movements as the expected returns and the price changed. We trade around those positions, around our target weights. We change our target weights due to new information, which comes intraday even.
“So we trade maybe 10–15 times a day on some of our core holdings to try and capitalise on those small bits of alpha which are thrown off by this volatility, which our peers don’t do. That generally gives us an edge over a pretty poor market environment for a quality investor.”
“It’s like buying a Bentley for the price of a Mondeo”
“What’s quite incredible at the moment is, for a very rare period this year, we’ve been able to create a portfolio as a whole with really high-quality characteristics and a discount to the market.
“If you look at our portfolio from yesterday’s recalibration, we’ve got a return on equity of around 67%, which is three times the index. We’ve got a net margin of 34%, which is about double the index in MSCI World.
“We’ve got a return on invested capital of 48%, and we’ve got an expected growth rate of over 30%. And yet the portfolio is trading at a discount to the index if you look at P/E ratio or free cash flow yield.
“So in my mind, it’s like buying a Bentley for the price of a Mondeo.
“It really doesn’t make any sense that you’re getting these great companies, the best, highest-quality companies on the planet, for a discount to the market. It’s the first time we’ve seen this dislocation where it’s actually trading at a discount rather than a premium. So it’s a very interesting time if you’re a patient quality investor.”
Why there’s always a reason not to invest
“I try not to get distracted by the macro headlines, whether it’s oil price or the Fed or funding levels of AI financing or whatever the latest story is. Look, I started in the City in 1995 and it’s just been one long time series of reasons why not to invest.
“So there’s always something brewing which makes you a little bit nervous. But in the long run, we all know equity investing is a very profitable business.
“For me, I was lucky enough to spend a bit of time in the hedge fund investment community, and I did quite a lot of work on seasonality. The US midterm, or the US election cycle, is a very strong seasonal pattern where Q4 midterm is the start of a three-quarter period where, seasonally, you get very strong returns.
“So I think the recent weakness has been a really good opportunity to add to equity allocations to run into next summer. Once this event of the US midterm clears, if history is any guide, equity markets generally do really well.
“And on top of that, we’ve got a fund which is invested in quality, at a discount to the market, and some really compelling companies with compelling growth stories going forward. So we think here’s quite a nice sweet spot to allocate to this space.”
Why market shocks can create opportunities
“I think the AI talk is overplayed. It reminds me a little bit of Alan Greenspan’s irrational exuberance, where in 1997 he was waving the flag about the tech valuations. He had another three years to pan out, and that feels probably about the same here.
“What I would say is that the other good thing about being a quality investor, if you were to look at our portfolio as a whole, we really do have a big allocation to the profitability factor and really highly profitable companies.
“If we do get an exogenous shock, be it global geopolitical risk or some kind of escalation in the Middle East, what you generally get is a flight to quality, and quality companies do really well in that environment relative to the index.
“Whether that’s a COVID-type scenario or Liberation Day, what you generally find with our portfolio is the drawdown is significantly less than the index.
“But also, that gives us this great optionality of being able to deploy to areas, because of our style, which have overshot the downside. A great example is Liberation Day.
“If you look at our drawdown into that period, we actually were more muted than a lot of funds, but then we came out at a faster rate. So, yeah, we don’t mind the short-term volatility to give us opportunities to redeploy and switch our allocations around.”
Conclusion: Quality investing has endured a difficult period, but changing valuations are creating opportunities.
With quality companies now trading at unusual discounts and volatility providing opportunities to adjust positions, the current environment could prove particularly interesting for patient quality-growth investors.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own at the date of publishing and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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