Mark Dampier: It takes time and patience to excel as a fund manager
Saturday 14 June 2014
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
The FTSE 100 is inching closer to its record high but can it maintain these levels?
MPs call for Equitable Life policyholders to be paid £2.8bn owed by government
Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity
Bank-beating exchange rates on your international payments
Weekly Money: Round-up of the personal finance stories you may have missed 23-27 February
- 1 The black and blue dress: Makers considering a white and gold version
- 2 Husband and wife die holding hands within hours of each other after 67 years of marriage
- 3 What color is The Dress, white and gold or blue and black? An eyewitness gives a definitive answer
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 Madonna claims jokes about her age tantamount to racism: 'No one would dare to say a degrading remark about being black'
Oscars 2015: Birdman beats Boyhood as Eddie Redmayne and Patricia Arquette win big - as it happened
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
This is what it's like to be dead, according to a guy who died for a bit
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
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