Save, make, understand money


BLOG: Four fund managers who ignore the economy

Paloma Kubiak
Written By:
Paloma Kubiak

The role of fund managers in an investor’s portfolio is going to be as important as ever in the next 12 months.

Lockdown may be easing, but significant damage has been done, with many dark clouds now hanging over the global economy.

Last month, I wrote about how recession is an inevitability – it’s a case of how deep and how long it will last. And now, the Organisation for Economic Co-operation and Development (OECD) has warned that the British economy could be among the hardest hit of the leading nations – with a fall of up to 11.5% in 2020. The OECD also says the UK economy could contract by 14% if there is a second peak.

The unprecedented impact of Covid-19 has meant no industry has been immune. Whether it’s the hardest hit sectors – such as travel, hotels and airlines – or the more resilient – such as technology, healthcare and financial services – consolidation across all industries and sectors is inevitable. It’s going to be all about finding the winners and losers for active managers in this climate.

With the macroeconomic picture clouded, we thought we’d look at four funds which put this to the side and focus purely on stock selection. All have proven their ability to find the right companies in the past, regardless of the wider economic outlook.

  1. MI Chelverton UK Equity Growth

Launched in 2014, this really has been one of the standout UK funds in the past five years – returning 103.7% to investors compared to 11.7% for its average peer. The fund is managed by James Baker, a 30-year veteran in the UK smaller companies’ sector.

The fund can invest in any companies sitting outside the 100 largest in the UK, but typically has a strong focus on smaller companies. Baker specifically targets companies with strong growth characteristics, good cash-conversion, reasonable debt and high gross margins. This leaves him and the team with about 150 stocks to further analyse.

The second part of the process involves a qualitative assessment with Baker targeting predictability of sales, sustainability of margins, and good management. We like the simple, disciplined process and the manager’s ability to get a guide of a company beyond the statistics.

  1. Marlborough European Multi-Cap

Fund manager David Walton has totally reformed this fund since taking it over in 2013, with a pure focus on individual companies as opposed to sectors or industries. While the fund can invest in companies of all sizes, Walton finds the majority of his ideas in the small and micro-cap space.

The fund has a bias towards growth, but it’s also disciplined on company valuations. The fund is also well diversified with around 110 holdings – with initial positions being no larger than 2%. It has returned 85.5% to investors in the past five years, compared with a 38.7% return for the sector average.

  1.  Fidelity Asia Pacific Opportunities

Fund manager Anthony Srom adopts a high conviction approach to investing in this Asian equity fund. He uses the breadth of resource within Fidelity to hone his best ideas, comparing what the market says about the share price of a company against his own interpretation of its valuation.

The fund holds between 25 and 35 companies, with a one-in one-out policy when at the maximum 35 names. Although he runs a concentrated portfolio, Srom aims to lower potential volatility by making sure the fund is well diversified. It has returned 104.2% to investors in the past five years compared with 48.9% for the average fund in its sector.

  1. Baillie Gifford High Yield Bond

This fund is managed by Robert Baltzer and Lucy Isles and offers access to a portfolio of largely US, UK and European high yield bonds. As with all other Baillie Gifford funds, the managers focus on stock picking, so the portfolio is likely to be concentrated with around 50-90 holdings and have low turnover.

Ideas will come from a variety of sources, but each holding will have the key feature of resilience – whether from the company’s competitive position, financial structure or its management team.

The fund has returned 21.4% to investors in the past five years compared to a return of 15.9% for its average peer.

Darius McDermott is managing director of FundCalibre and Chelsea Financial Services