Mark Dampier: New fund launch seeking to surf a wave of success
Saturday 07 July 2012
It is always intriguing to consider new fund launches. Fund management groups frequently launch funds to capitalise on an important theme, or harness the skills of an established fund management team. This new launch falls into the latter category. Fund managers Ben Leyland and John Wood have been running the JO Hambro UK Opportunities fund for more than five years, and with considerable success. It is up around 6 per cent over five years, over which time the FTSE All Share Index with dividends reinvested is down 3.1 per cent.
The UK fund's shorter-term performance is also good, and has certainly held up relatively well during periods where the markets fell. The managers attribute this to being realistic about the UK economy. They have always believed it was likely to perform poorly and retained a degree of cash in the portfolio – at present they have around 15 per cent.
With this new fund, they are being similarly cautious. Mr Wood uses a rather interesting analogy to describe markets currently: Imagine government's efforts to stimulate the global economy as waves in the ocean and global financial markets as surfers. The surfers wait to catch the next wave, whether it is more quantitative easing, interest rate cuts, or another attempt by the eurozone to resolve its problems. Each wave propels the surfers forward and everyone enjoys the ride. However, each fresh wave is weaker than the last and carries the surfers less far. Eventually, the sea will be largely flat and the surfers won't go anywhere. In other words, once stimulus ends stock markets could stagnate for a prolonged period.
Mr Leyland and Mr Wood suggest there is still the odd decent wave to catch. The strategy, they believe, is to be selective and search for companies that will thrive despite a difficult environment; ones with robust business models and a sustainable competitive advantage. By this, they mean companies that can consistently grow their market share, those that own or operate unique infrastructure upon which large amount of people are reliant, or which have products or franchises people trust and turn to again and again.
Within the fund, this translates to having a bias towards certain areas including technology, healthcare, industrials and consumer goods. Apple is a prime example but lesser-known firms may provide better investment opportunities. One is Sage, which provides accounting software to businesses.
The pair have about 17 per cent of the portfolio invested in healthcare companies. As well as exposure to UK-listed GlaxoSmithKline, they like Roche and Novartis. In the consumer sector, they like Belgian-listed Anheuser Busch InBev.
As a concentrated portfolio of between 25 and 40 stocks, the fund is likely to have considerably less in sectors such as energy, financial and utilities where the pair find it harder to identify companies that meet their quality criteria. They also have the flexibility to invest in small and medium-sized companies, so won't just be a blue-chip portfolio.
I admire Mr Leyland's and Mr Wood's approach of looking for robust, multinational businesses that can keep growing through thick and thin. While the managers are far from upbeat on the world economy, they see considerable scope for good-quality companies to thrive. This is often a mistake private investors make.
They are so caught up in the macro-economic environment they fail to see the opportunities and never actually bring themselves to invest. Good-quality companies will come through the worst of times stronger, so if you want a global fund that aims to pick out these long-term winners, this new launch could be of interest.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.h.l.co.uk/independent
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