Mark Dampier: A small and nimble fund with a good mix of stocks
Saturday 12 June 2010
It is probably fair to say OLIM UK Equity is a fund name few people recognise. Set up in 1986 by Matthew Oakeshott and Angela Lascelles, OLIM run almost £7bn across private client portfolios, unit trusts and investment trusts. They are now owned by the bank Close Brothers, but the founders are still very much involved in the business. The OLIM UK Equity income fund is tiny by industry standards (and in comparison to the company's overall assets) at only £8m. However, it is managed by an established management team of three: Andrew Impey, who has 28 years' experience, Simon Jaffe with over six years' experience, and Angela Lascelles, founder of the company.
This small fund aims to find the best stock ideas across the UK market. They are looking for shares that pay a good level of income as well as providing plenty of growth potential. This narrows down the field quite quickly. So the portfolio is concentrated at around 30 to 40 stocks (currently 38) with a typical split of half large and half small to medium-sized companies, although they have very little in smaller companies at the current time.
Broadly, they separate their stocks into four categories. Firstly, stocks with unrecognised growth potential, which are longer-term holdings they believe will benefit from strong structural themes. A good example is their holding in Dechra Pharmaceuticals, which has a stable business supplying veterinary medicines as well as a more exciting drug development side. The latter part of the business is more risky, but they have a good pipeline of medications, many of which have already been approved for use on humans.
Secondly, they invest in stable income producers which tend to be larger, defensive stocks, such as GlaxoSmithKline, Vodafone and Royal Dutch Shell. This tends to form the foundation of the fund's income, and is an area I believe is particularly undervalued at present.
Thirdly, they look for recovery or restructuring situations. Examples here include Unilever, a company which is increasing investment, cutting costs and introducing new products. It also has more than 50 per cent of its sales in emerging markets, which could be a huge area of growth over the next 20 years.
Finally, they look for valuation anomalies, stocks that are basically just too cheap with a big discount to their peer group. One stock that few people know about is N Brown, a retailer, which at first you might think was an area to avoid given the economic situation. However, they have a very good online business selling what are politely called "plus sized clothes". On a 4 per cent yield and a price earnings ratio of 12 times, they look cheap, and the market is perhaps overlooking them.
One area the management team do tend to avoid is what they call "glamour stocks". This might include mining companies or shares that are generally over-hyped. You won't see any blue sky solar power companies or some unheard-of oil exploration stock. Nor with three experienced individuals managing the fund do you have to worry too much about changes of personnel. Angela herself was a founder of the business, and while Andrew Impey and Simon Jaffe are the newer entrants with only two years in the company, they seem to be here to stay and are looking forward to growing the fund.
So in summary, this is a solid UK Equity Income team looking in both traditional and less traditional areas of the market. They do precisely what I would want: search for the best stocks with little reference to any benchmark or sector average. Performance has been good to date, with the fund up 54 per cent since launch in January 2002, compared to 31 per cent for the IMA UK Equity Income sector. The fund's small size is certainly an advantage, making it nimble and flexible, and with an income yield of around 4 per cent you can afford to be patient and wait for the growth to come through.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
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