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A contrarian ethos defines both the corporate culture and the investment philosophy: “Many managers have no money in their fund and cannot articulate the inefficiency that they seek to exploit. The worst culprits are often big fund managers, who often have unremarkable performance, whereas boutiques tend to outperform. The best fund managers have skin in the game in terms of both the fund and the management company, as we do. I am fully committed to our investors. Cornwall is my favourite place and the joy it brings is the essence of the business I intend to build. Given its unique beauty and renewable energy potential, Cornwall is often called the California of the UK. To us, our strategy is also beautiful, progressive, and difficult to replicate. Our clients understand and appreciate professional success, balanced with the enjoyment of life,” says Wood.
Says co-founder and CEO, Edward Hugo: “I grew up fascinated by business and my dad was an early Internet entrepreneur. After university I went straight into early-stage, fast growing businesses, not the usual corporate graduate schemes at large firms that my peers enrolled in. I then spent ten years on the sell side to get a proper education in finance, where I met Alyx on a site visit to a listed potato farm in Jersey. When Alyx shared his plans with me in 2019, it was not a hard decision to join him”.
“We are all outsiders rather than traditionalists,” says Head of Client Development, and Head of ESG, Dr. Christina Makris, who pivoted from academia to advising family offices, worked with Wood in her last role, and has authored an upcoming book titled Aesthetic Dining. “I have always had a contrarian streak in my career in academia and was attracted by the distinctive structure and entrepreneurial approach. Kernow enables me to bring together my background in philosophy, and responsible investing.”
Contrarian investing At the core of Kernow’s investment philosophy is the belief that a contrarian approach leads to more skewed risk/reward opportunities. “If something is very well understood and priced in, then to bet against it will probably lose very little but if we are right and consensus is wrong, we stand to make an asymmetric gain akin to a small fortune. In fact, we just need the odds to narrow to collect the inefficiency premium. I was inspired by finance books including Seth Klarman’s Margin of Safety and Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds. I have 109 other investment books on the bookshelf,” says Wood.
Their tendency for longs to have lower beta than shorts is one facet of the contrarian bias: “The
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longs generally have a lower beta, which is why few fund managers like them, as they expect them to underperform, and the reverse applies for the shorts. We are of the opinion that the historical beta is wrong, especially if there is an upcoming catalyst – and regardless, we can also scale up a low beta position to the market volatility and make a higher return with lower risk,” explains Wood.
The UK equity market In late 2020 and early 2021, the UK market is a contrarian play that could offer generational value: “The UK currently trades at the largest valuation discount to Europe in my lifetime. It is on an emerging market valuation, at a huge discount to developed markets, which peaked around 40% in October 2020 and has only just started to narrow.
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