Mark Dampier: Backing 'written off' companies can pay, despite the volatility
Friday 21 March 2014
I wrote about the Jupiter UK Growth fund for this newspaper last summer, just after Ian McVeigh celebrated his tenth anniversary as manager. Following another meeting with Mr McVeigh and Steve Davies, the co-manager, last week, I thought it was worthy of another update.
The fund has a strong long-term record, having grown 184 per cent over the past 10 years, against 126 per cent for the FTSE All Share index. Without taking anything away from Mr McVeigh, though, performance has been particularly strong in the past two years, which I believe partly reflects the input of Mr Davies, who was officially named co-manager in January 2013.
Broadly, the managers invest in two types of company: those undergoing a recovery and those they believe are capable of strong growth. The former tend to be companies written off by other investors and often deemed "uninvestable". This immediately causes the pair to sit up and take notice.
They are not afraid to back their favourite stocks with great conviction, and over 90 per cent of the portfolio is invested in just 30 companies. This means each holding has the potential to contribute significantly to performance, but it also tends to make the fund more volatile.
Two-year price targets are set for each stock, which Mr McVeigh believes promotes discipline. This is not to say they will always sell a stock when the target is reached, but it is a signal to review the company and decide if the strong run can continue.
Given the severe UK recession in the wake of the financial crisis, it has not been surprising to see a number of recovery stocks in the portfolio. Dixons has been a notable success. Many thought it was for the scrapheap, suffering from similar problems to HMV. However, the recession saw off competitors such as Comet, giving Dixons the chance to increase its market share. Price cuts and service enhancements also helped and the share price has more than trebled since the mangers first purchased them around three years ago.
The fund's hefty exposure to the UK banking sector has also worked well of late. Lloyds, now the fund's largest position, was purchased in 2010. Initially, this proved painful, but the fund took advantage of share price weakness to increase its exposure. Over the past couple of years that stance has paid off, as sentiment towards the company has markedly improved.
Growth companies tend to be those the managers believe can grow sales at least in line with nominal GDP over a three-year period, which would currently equate to sales growth of around 6 per cent over three years.
Examples of growth stocks held in the portfolio are the information services company Experian, which Mr McVeigh describes as having massive barriers to entry, and the German car giant BMW.
Around 9 per cent of the portfolio is held in cash, which is not necessarily unusual. Mr McVeigh believes valuations are less compelling than they were in early 2012 and, rather like me, felt there was too much optimism in the air at the beginning of this year. The cash gives them the firepower to pounce when they see opportunities.
This fund is likely to suit long-term investors looking for a focused portfolio. This will lead to greater volatility and the fund's performance will differ markedly from the stock market at times. It is a genuine stock-picking fund, though, and one that I believe has been consistently under-rated.
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.hl.co.uk
- 1 I was a Woman Against Feminism too
- 2 Fifty Shades of Grey movie trailer released: First look at Jamie Dornan as Christian Grey
- 3 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 4 Students offered grants if they tweet pro-Israeli propaganda
- 5 The Tory donor whose firm is one of Britain’s biggest tax avoiders - with HMRC's blessing
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...
competitive: Progressive Recruitment: This really is a fantastic chance to joi...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...
Day In a Page
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar