Cover | Published in August 2013

2013 Best Managers You’ve Never Heard Of

By John Keefe | August 2013
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The design of Trinity’s strategy—portfolios of just 30 to 35 stocks, with targeted turnover of about 30% per year and no predetermined slant toward growth or value—allows portfolios to be managed by a small team. “Each portfolio manager is looking for, say, five genuine best ideas each year, so we don’t have to analyze everything and cover the whole world,” Hughes explains. “But we know what we are looking for and have the research expertise to gain the conviction in our ideas that we need. What we bring to bear is experience and genuine ability, rather than a large quantity of people.” Accordingly, the portfolio managers stay plenty busy, making about 600 company contacts a year.

The market’s reliance on sell-side analysts for estimates of companies’ earnings creates a systematic flaw and opportunity, says Hughes. “Analysts follow an entire sector and are not on top of every company. And it can happen that when a company is changing rapidly, the forecasts the market uses for valuation can get behind the curve.” Trinity believes its portfolio managers are capable of accurately forecasting what will happen two or three years out. “The beauty of all this is that the source of our outperformance is corporate change, which is happening at least somewhere all the time,” Hughes says.

Also central to Trinity’s success, Hughes contends, is the three portfolio managers’ direct ownership of the business. “Their remuneration is linked to the performance of the stocks they select, and they invest their money alongside the clients, so their interests are completely aligned and they have to make it work.”

Performance has been excellent: eVestment ranked Trinity Street’s Global Equity portfolio in the second percentile among global managers for the five years ended in June. Further results are detailed in the table at right.

Trinity’s total staff numbers just eight: three investors, three marketers and two operations staff—enough to serve the firm’s 17 clients. “We will visit the issue of our capacity when assets hit $3 billion,” says Hughes. “But a good deal of our business is on performance fees, and given that we believe performance could suffer with much larger assets under management, why on earth would we let that happen? We want to grow, but we don’t want to get too big.”