In this interview by the FundCalibre team, Mark Ellis, manager of the Nutshell Growth fund, shares his fascinating journey to becoming a fund manager with a unique quantitative process at the heart of this fund. The fund blends quality growth, and momentum factors, constantly evolving with twice-monthly reviews to ensure the portfolio holds the world’s best opportunities. Mark explains why trading more frequently doesn’t necessarily lead to higher costs and how his background as a trader gives the fund a crucial edge in capturing alpha. A must-listen for any growth investor.
Why you should listen to the interview: If you’re curious about how cutting-edge technology and hands-on experience combine to build a global portfolio of exceptional companies, this episode is for you. Learn how a data-driven yet pragmatic approach can uncover rare opportunities and why adapting quickly can mean the difference between winning and losing.
This interview was recorded on 28 February 2025. 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:
Starting with a blank piece of paper
“What we do in practice is we compare like for like across the globe and we do it twice a month to make sure we’re in the best companies for the best possible price.
“So we start with a blank piece of paper. I did the last recalibration on Monday, and it takes a lot of time. It’s hard work. We don’t have to do it. We could easily stick with the January 1st portfolio and let that run for the year, and it’d be a very nice portfolio, similar to our peers, and we’d do really well. However we do it because we’re trying to capture those small bits of alpha which are usually driven by movements in stock prices and movements in expected returns because of those price appreciations or declines. So we start with a blank piece of paper twice a month and create the portfolio from scratch.
“Generally, as I said, it’s the valuation factors which do a lot of the movements in terms of positioning our portfolio or dropping out the portfolio. But, in essence what it creates is a portfolio with a kind of earnings multiple of around the S&P or slightly higher than the S&P, but it’s a portfolio that holds the best companies on the planet.”
A process that’s PM-proof
“At the moment, we look at over 30 different factors. We’re continually doing research to add new factors to improve the process. We added two new factors last year and like every PM you have this dilemma where to invest. You could probably select up to 10,000 different securities. And how do you get that reduced to a portfolio of 30?
“So we have minimum hurdles for the factors we like. For example, one we require is minimum profit margin, minimum return on invested capital, and the minimum retention ratio. So that quickly reduces the sample set down to around 600. And then we have our own internal model and process where we push the 600 stocks through the model which shows us typically how aligned and calibrated a specific stock is to the factors we like and the factors we want to have exposure to. And then we push it through a checklist because obviously models sometimes can’t pick up everything. Then that gets the kind of sample set down to around a hundred.
“Then I use what we call what would be identified as a traditional kind of PM discretion to create a portfolio of around 30 stocks. The whole quant process basically means that it’s hopefully trying to get us to a focus set where it is as PM-proof as possible. Warren Buffet loves companies which are manager proof. We want to be looking at stocks which have got really great quality characteristics, really compelling growth profiles, really good technicals, including capital preservation and also great value so that the process which we run gets us to the kind of focus set of these rare exceptional companies. And then we do our kind of traditional PM role on top of that to create a portfolio.”
The lowest allocation to US in the fund’s history
“Our turnover is very high and recently it’s quite interesting. I would say from inception, our holding of US equities has always been around 70%. And recently because of the kind of the mismatch of performance between say Europe and US, the allocation to US has dropped. And it recently dropped below 60%, I think 57% for the first time ever really. Actually when I recalibrated this Monday that has flipped back somewhat as we’ve kind of increased our exposure to some more of the tech names on the back of this week’s sell off and last week’s selloff.
The cost of trading has collapsed
“We’ve just agreed a super competitive brokerage deal with one of the leading brokerage houses out there where we get charged virtually nothing. So the cost is limited, but it enables us to pivot and switch from one stock to the other. But I would also say, because of my trading background, we also do a significant amount of trade in intraday. So I have a system here which alerts me when any of the stocks in our portfolio or watch list move significantly intra today. And we often trade that move and actually get positive slippage.
“I recently got two reports from the new broker and they were amazed that we were actually managing to get positive slippage from the arrival price of the orders gone into the market. But again, I’ve spent decades at trading desks managing risk trading all day long; it’s what I do. I love doing it. A traditional fund manager probably reads analyst reports, has an investment committee, decides to do something, and then takes weeks to get the position on. Because of my background and my skillset, we can go from idea or we can go from information to trade within seconds.
Conclusion: Mark Ellis offers a fresh perspective on modern fund management — combining deep quantitative research with the agility of active trading. His passion for uncovering the world’s best companies, his willingness to constantly challenge his own process, and his personal financial commitment to the fund all stand out.
Main image: ferdinand-stohr-rzA7ZuI8M5o-unsplash
