‘I pay to use Buffett’s name – but it’s worth it’

After years of beating the market, Keith Ashworth-Lord tells Lauren Almeida how his £1bn fund picks out the best companies Britain has to offer

Warren Buffett, the famed “value” fund manager, has inspired many generations of investors. But it was not until 2011 that Britain came up with its own answer to the sage of Omaha: Keith Ashworth-Lord, who runs the £1.4bn SDL UK Buffettology fund.

After agreeing a fee with Mr Buffett’s former daughter- in-law, Mary Buffett, Mr Ashworth-Lord is now the only manager in Britain who is licensed to use the Buffettology brand. So far the name – and the philosophy that comes with it – has served investors well. It has returned 48pc over the past five years, thanks to early bets on stock market darlings such as Games Workshop.

Mr Ashworth-Lord tells Telegraph Money how he finds the stocks that the rest of the market overlooks and why he made one exception to his “no flotation” rule.

WHO IS THE FUND FOR? Investors who want the power of gradual compounding in their portfolio. We look for steady businesses that are operating within growing markets and are returning somewhere between 5pc and 10pc each year. Investors should have at least a 10-year time horizon, but forever is the ideal holding period.

HOW DO YOU PICK STOCKS? We look for companies that not only have healthy operating margins but are improving them.

The most important indicators are return on capital and return on equity, which measure how effectively a company turns an investment into profit. We also want to see how much of a company’s earnings ends up as free cash after all of its capital demands. We look for businesses that convert at least 80pc of their earnings into free cash – any less than that and we would question the quality of its revenue.

We also like senior management who behave like owners of the business and have big stakes in their own companies. We like family ownership too, because we have found that their stewardship is second to none.

DOES THAT EXCLUDE NEWLY LISTED COMPANIES? The problem with initial public offerings is that we don’t get enough time to do our research. We like to crawl over things and kick them before we put them in our portfolios. With young companies, their financial records do not go back far enough.

We have taken part in one IPO: the cybersecurity company Darktrace, which floated on the London Stock Exchange last year.

I looked at the business five years ago. I knew it was going to list and we had plenty of time to get all the financials we needed at Companies House. We were primed and ready to go by the time that IPO came.

Darktrace has been volatile, but we do not think that volatility is the same thing as risk. Anyone who is afraid of volatility would be in a psychiatric institution by now, having ridden Darktrace all the way up to £10 a share [from a purchase price of 250p] and all the way back to 340p.

WHAT HAS BEEN YOUR WORST INVESTMENT? Dignity, the funeral provider, has been the worst investment in terms of why I lost money on it. I got it wrong: I hadn’t realised that price comparison sites had sprung up for funeral services. It drove a stake through the heart of the business model. It fell by half in six months.

WHY DO YOU HAVE 8PC IN CASH? Our cash position has been as low as 0.2pc and as high as 18pc, but typically it is around 7 or 8pc. I like to have some fire power, in case I see something I really want to buy.

YOUR TOP HOLDING, GAMES WORKSHOP, HAS DROPPED 27PC THIS YEAR. ARE YOU WORRIED? A lot of companies in the portfolio, such as Games Workshop, have said they are facing supply chain issues, but they are also saying they have the ability to pass on higher costs to their customers.

We are still very positive on Games Workshop. They exploit their intellectual property with licensing agreements, which is a great business model. There is no cost attached, just pure profit. Go ask Mary Buffett and her team – I pay them a royalty each month.

The key thing is the fanaticism of Games Workshop customers. They are mainly young men in their midteens to mid-30s and it’s an incredibly close-knit community, with eight million users interacting online.

It has been our best investment. We first bought it in April 2011, for around 370p. Now the shares are worth £73.90.

WHAT WOULD YOU HAVE BEEN IF NOT A FUND MANAGER? My first degree was in astrophysics and I am a space nut. I would have tried to join the Nasa astronaut corps.