A City financial trading background, added to a disciplined investment mindset, appears to be working out well so far for this UK asset management business, founded in 2019.

When chipmaker Nvidia’s stock price slumped by around 17 per cent a few weeks ago upon news that China’s DeepSeek AI app had been – allegedly – produced for a fraction of Western AI tools, it was a reminder of how fund managers need to be nimble, even if they don’t rip apart strategic asset allocations.

Among the many discussions that endure is how to balance the benefits of long-term asset allocation – which conventional wisdom says drives most of the variation in returns – alongside tactical shifts, trades and adjustments. There’s arguably no “right” or “wrong” answer to this; capitalism has a habit of not allowing any new investment philosophy to dominate forever. Much depends on the time horizons of clients and their goals, among other considerations.

Using financial derivatives such as total return swaps, futures, options and warrants might not sit easily alongside talk about “the long-term view” but there is less conflict between these worlds than one might think. That’s the view of Mark Ellis, founder and chief investment officer of Nutshell Asset Management in the UK. In early December 2024, the firm announced that City luminary Michael Spencer, now a member of the House of Lords, had been made chairman.

"Recent DeepSeek developments have prompted a revaluation of some of the tech company valuations, since it seems that a more cost-effective approach is potentially available," he told this publication in an interview. "At Nutshell we reflected this new information into our process immediately on Monday the 27th and adjusted the allocations to stocks we thought were impacted. This is a good example of our nimble proactive approach, where new information can be digested and reflected quickly."  

“You have to be able to pivot to where the growth is,” Ellis said. The fund bought into Nvidia earlier this year; it trimmed its exposure later in 2024. (According to a January 2025 factsheet, the Nutshell's flagship strategy, the Nutshell Growth Fund, has Nvidia in its top-five holdings, along with Adobe, Fortnox, Mastercard and MSCI. In geographical allocation terms, the US is way out front, with US companies accounting for 57 per cent of the total, with the UK at 9.4 per cent.)

The fund strategy was incepted in January 2019. It complies with UCITS rules, such as daily dealing; it does not charge a performance fee. It is a concentrated strategy investing globally in what it sees as rare, exceptional and ethically-sound quality/growth companies. In 2024, the fund made annual returns (in US dollars) of 24.51 per cent, according to the factsheet. Measured in euros, returns last year were 32.62 per cent. Fund AuM is £356.5 million ($443.5 million).

“The fund offers daily dealing, high liquidity and is competitively priced making it attractive to a wide range of investors, including small retail, high net worth individuals and institutional clients,” Ellis said. 

Ellis founded the firm in 2019. From 2015 to 2016, he was a portfolio manager for Symmetry Investments, and before this, he was a derivatives trader at firms including RBS, Citigroup, Bear Stearns, and HBOS. 

That trading experience helped shape Ellis’ way of investing. From 2016 to 2018 he wrote a model for an investment approach that identifies over 30 different factors that affect outcomes in a portfolio. There are quality, valuation, growth and technical factors, for example, he said.  

The model is “run” twice a month, with the team beginning with, so to speak, a blank sheet of paper; they cast a net covering 10,000 securities and through a series of filters, getting down to 600 securities. This means that only firms already making a profit are in the frame. The securities are ranked and put into a checklist and subjected to more subjective scores. The scoring also includes ESG, potential red flags (such as litigation, anti-trust risks, etc), moat/comparative advantage analysis and finally, portfolio manager discretion. The number of stocks is reduced to a portfolio of 26 to 33 stocks. 

Importantly, the UCITS rules under which the fund is run means that no position can account for more than 10 per cent of the total; on positions of 5 per cent or more, they cannot comprise more than 40 per cent of the total. This is designed to curb concentration risks. 

Ellis said the fund seeks exposure to quality for the cheapest price. 

The overall price/earnings ratio of the portfolio at the moment is about 29.8 times earnings, according to the January factsheet; return on equity is 66.7 per cent, handily above the MSCI World Index PE of 14 times earnings. The fund’s net profit margin within its investments is 44.4 per cent; the MSCI World Index margin is 11.7 per cent. In other words, you get what you pay for – hopefully. 

Trading overlay
The fund has a “trading overlay” that adds percentage points of added returns to the portfolio. 

“Our trading overlay is designed to enhance returns by actively managing deviations from target weights during recalibration. The model operates in real-time, meaning changes in scores can prompt trades to adjust the portfolio dynamically. Additionally, we utilise intraday signals to identify overbought or oversold price action within the portfolio's stocks, creating opportunities for short-term trades,” Ellis said. 

Ellis said his background has served him well at Nutshell. 

“The experience has been invaluable and contributed significantly to the process and how we execute the process [such as] from the macro long-term biases, to the short-term intraday relative value trading opportunities,” he said. An understanding of event and bear market risk is also important. “Being a relative value trader for nearly 30 years is extremely helpful in generating a structured, balanced and systematic research-driven approach to investing.”

WB asked Ellis what attracted Spencer to Nutsell. Spencer founded inter-dealer brokerage NEX Group (formerly ICAP) and is one of the big-hitters in the City, a philanthropist, a member of the House of Lords and former Conservative Party Treasurer.

“After six years of returns and evidence that we have a fantastic product, he [Spencer] has the confidence to endorse and fully get behind Nutshell. He sees we have the experience to create a significant disruptive asset management company with a very differentiated process philosophy and portfolio management. [This is] a hedge fund style process at retail prices,” Ellis replied.

Ellis is keen on new ideas, such as those from academia, to keep his business on the front foot.

“Any academic research that we can test ourselves is always welcome, Reading academic papers and published research is an integral part of our research process. Bloomberg and Morgan Stanley equity strategists often provide decent material which we can test also along with recommended texts and books. I really like and respect Jeremy Siegel’s market views – Stocks for the Long run is a good read for anyone interested in long-term investing. Acquired Podcast which offers interesting deep dives into many of the quality companies we invest in is also a good source,” he added.