Mark Dampier: It takes time and patience to excel as a fund manager

 

Passive investing has a number of advantages over active management. There is no fund manager risk; costs are lower; and passive funds give you the market or index return. The latter point is actually not strictly true. Once costs, however low, are factored in, passive funds are guaranteed to underperform.

Unfortunately, many active fund managers are merely closet trackers, but they charge higher fees for the privilege. Finding good active managers in a limited talent pool is no easy task. It often takes a number of years before a good fund manager begins to stand apart from the crowd. The likes of Neil Woodford, Nigel Thomas, and even the young Warren Buffett, had to work hard to earn the respect of investors, and they didn't achieve success overnight. Like any profession, from football to brain surgery, it takes time to develop the skills and experience required to gain an edge and excel above others.

It is with this in mind that I turn to George Godber, who manages the CF Miton UK Value Opportunities Fund alongside Georgina Hamilton. The fund isn't quite two years old yet and while Mr Godber previously ran a similar fund at Matterley, this was alongside Henry Dixon, so it is difficult to establish the exact impact each had on performance.

In addition you need to recognise the impact of fund manager style and size of company on returns. Over the past five years smaller and medium-sized companies in the UK and across most other stock markets have performed strongly. Any fund manager with a bias to this area should therefore have received a boost.

How much of this is luck and how much is skill is a difficult question to answer. At Hargreaves Lansdown we aim to analyse a fund manager's track record over the longest possible term, at least incorporating an entire business/economic cycle. This helps to strip out variable, or short-term factors, including where a manager might have benefited from momentum in a narrow area of the market.

Mr Godber has been performing well, but he has been invested predominantly in smaller and medium-sized companies. Time will tell how he develops and adapts to different stock market conditions, but I believe he could be an up-and-coming manager worth keeping an eye on for the future.

In terms of style he is very much a "value" manager and he looks for a "margin of safety" when investing in a company. He looks to buy £1 of assets for 50p, for example, but also aims to ensure the company is healthy enough to survive and is not a complete write-off. This requires a lot of number-crunching as well as site visits to check that a company's assets actually exist.

This approach tends to lead him towards companies with real assets such as buildings and machinery or intellectual property such as copyrights and patents. It also results in some more interesting opportunities being uncovered, such as Michelmersh, a brick company which is recovering strongly after being hit hard in the recession.

Another example of a company that many fund managers overlook is Aer Lingus. Its planes are currently valued at £800m, but it has £400m cash on the balance sheet and a market capitalisation of just £600m. Mr Godber does not believe the value of its Heathrow landing slots are fully reflected in the valuation and he sees significant upside in the business.

Valuation forms an important part of the process and Mr Godber is currently finding a lot of sectors too expensive to buy into, including pharmaceuticals & biotechnology; telecoms; food retailers; semiconductors; utilities; and household & personal products.

The discipline of not investing in companies and sectors he believes to be overvalued gives the fund a defensive quality and I would expect it to hold up better than some funds when stock markets fall, though it could also lag a strongly rising market.

My one caveat with this type of investing is that you have to be patient. A value-type approach often takes time to come through as over shorter periods the stock market can be pulled one way or the other merely by sentiment.

The fund is approximately £80m in size, so remains small and flexible.

At Miton Mr Godber is surrounded by some experienced fund managers, including Gervais Williams and Bill Mott, and I would expect this to be beneficial over the long term.

Mr Godber is a young fund manager who is certainly worth watching in my view.

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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
peopleMathematician John Nash inspired the film Beautiful Mind
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
music
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Abuse - and the hell that came afterwards

    Abuse - and the hell that follows

    James Rhodes on the extraordinary legal battle to publish his memoir
    Why we need a 'tranquility map' of England, according to campaigners

    It's oh so quiet!

    The case for a 'tranquility map' of England
    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

    Could have done with Osama bin Laden staying alive?

    Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
    New exhibition celebrates the evolution of swimwear

    Evolution of swimwear

    From bathing dresses in the twenties to modern bikinis
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine