As I write this, stock markets have recently fallen back by around 6 per cent. Is this just a brief correction and the chance to buy cheaply that many people have been waiting for? Or the start of a more prolonged slump?
The honest answer is that nobody knows, but in my opinion there is an overwhelming feeling of negativity amongst most commentators. My contrarian instincts make me feel this is a good sign.
While it can be fun to argue over the direction of the market, it is mostly a futile exercise. I think it is more profitable to concentrate on the top fund managers and this week I am highlighting Paul Spencer of Rensburg. He has run the UK Mid Cap Growth Fund from February 2006, since when it has been among the best performers in its competitive sector. The fund isn't yet part of our recommended list, but I'm considering it very seriously.
Rensburg itself is an interesting company, partly because it is not based in London but Leeds. Generally the fund management team has been stable because they have a lifestyle they enjoy up in Leeds, away from the noise and frenzy of the City. Mr Spencer's fund focuses on medium-sized companies (i.e. those that make up the FTSE 250 Index), and shares are chosen after analysis that combines detailed examination of individual companies as well as the manager's opinion of the wider economic picture.
During his tenure Mr Spencer has been an astute judge of the stock market. In 2006 he had particular exposure to consumer sectors and cut this back significantly in 2007. By the end of 2008 he had moved part of the portfolio into firms with strong balance sheets. He also made the right call to move into some relatively economically sensitive companies and bought shares in house builders and retailers near the bottom of the market.
Now we find him moving the portfolio towards firms who generate their earnings overseas and he has further reduced exposure to the consumer. In the UK we've been in a sweet spot in recent months because anyone with a tracker mortgage had a huge boost to their disposable income as interest rates fell to almost nothing. Many of those incredible tracker deals will come to a finish soon, however, so into next year many people will have to deal with higher mortgage payments on top of tax rises. Then we will really begin to feel the pinch of recession.
One of the major themes running through the portfolio at present is secular growth, meaning resilient companies with above-average growth prospects that are hardly affected by the recession. Examples of these include care homes, financial planning organisations and outsourcing companies.
Remaining holdings in this focused portfolio or around 40 stocks are in businesses selling low-cost items such as Wetherspoons and Greggs. He believes that in future the companies that are in a position of strength with cash on their balance sheets will outperform as their competition falls by the wayside.
Mr Spencer has specialised on medium-sized companies for a long time well over 20 years in fact so he has all the experience you could want. He therefore knows the stocks inside out and has the confidence to back his convictions, even when they go against the consensus view.
He has produced exceptional results so far and I wouldn't be surprised to see this continue into the future. Naturally, his willingness to go against the crowd does sometimes mean that he underperforms his benchmark and peer group, but like the best fund managers I believe that the times when he is proved right will more than make up for the occasional mis-step.
If you want a pragmatic, experienced and talented fund manager to look after part of your UK portfolio I do not feel you will go too far wrong with Paul Spencer.
Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independentReuse content