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
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Rihanna 'nude photos' claims emerge on 4Chan as hacking scandal continues
- 2 Frank Lampard equalises for Manchester City against Chelsea: how the internet reacted
- 3 Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
- 4 Kim Kardashian 'nude pictures' leaked on 4chan weeks after Jennifer Lawrence 'The Fappening' scandal
- 5 Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
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