Mott has called the economy right, but he must also deliver
Saturday 24 November 2012
If there is one fund that has frustrated me over the last few years it is PSigma Income. Managed by one of the most experienced income managers I know, Bill Mott, its performance since launch in April 2007 has been poor and the fund has fallen 5 per cent.
A large part of this has been timing. The FTSE 100 is down around 12 per cent over the same period, though with dividends reinvested the index is up 8 per cent. Mr Mott has also paid the price of purchasing bank shares in the initial months, and even though he quickly reversed his decision their falls still hurt performance. Yet even allowing for these problems the fund has still been below par, apart from in 2011 which was a good year for the fund.
I recently caught up with Mr Mott to examine performance over the previous quarter. His fund generally contains steady, defensive, blue-chip companies, so it wouldn't be expected to perform well in relative terms when the market rises strongly. Indeed, the third quarter was a classic "risk on" period with further quantitative easing (QE) announced. A major component of the fund, the pharmaceuticals sector, was particularly disappointing. Both GlaxoSmithKline and AstraZeneca failed to find favour with the market.
Mr Mott does appreciate that QE-induced "risk on" periods affect his relative performance, even if his prognosis for weak economic growth is proved correct. To counter this, some of the portfolio is dedicated to areas that could be expected to do well if inflation rises due to QE, such as the oil and gas sector. He prefers these to miners because spending on energy tends to be less discretionary.
To this end he has around 6 per cent of the fund in Royal Dutch Shell, 5 per cent in BP and 3 per cent in BG Group. The latter suffered an 18 per cent fall following results at the end of October with news of project delays. A relatively poor showing from oil shares as well as the effective profit warning from BG has not helped the fund. In addition, a 2 per cent weighting in gold shares (the first time that he has held them in his career) has performed badly, falling 10 per cent in the last month – even though the gold price has actually been holding up very well.
When considering more cyclical companies, Bill Mott looks at the attitude of management. He likes to see a focus on delivering cash to shareholders. One example is building supplier Travis Perkins. The firm dominates its field, and despite being subject to the economic cycle it consistently generates cash for investors. However, there are relatively few cyclical firms that meet his criteria, hence the concentration in the oil and gas sector.
What has been particularly frustrating is that Mr Mott's views on the UK economy are in tune with my own: a weak, stuttering performance delivering sub-trend growth, more likely to be around 1.5 per cent than the 3 per cent-plus we were used to prior to 2007. The Bank of England has recently finally revised their expectations to those expressed by Mr Mott several years ago!
Where he has positioned the fund, in companies with good visibility of earnings, therefore seems the best place to be. Unfortunately, it seems individual stock selection has, on the whole, let him down.
Recently there has been a view that defensive sectors have become expensive with companies such as Nestlé on a price-to-earnings ratio of 16. Yet in an uncertain world stable businesses like Nestlé with good emerging market growth and an excellent potential for increasing dividends should arguably be on a higher rating.
If such defensives do rally further the fund should fare well, though the risk is it continues to be left behind during "risk on" periods dominated by more cyclical areas where Mr Mott isn't invested.
Undoubtedly the last five years have been testing for fund managers. Mr Mott may have called the macroeconomic environment right, but without good stock selection to go with it he has lost ground to his rivals.
Neil Woodford has had a similar economic outlook and has performed much better. Though Mr Mott's record prior to his return to fund management with PSigma was exemplary he now needs to deliver for investors.
Diving in at the deep end is no excuse for shirking the style stakes
- 1 Game of Thrones author George RR Martin says 'f*** you' to fans who fear he will die before finishing Westeros saga
- 2 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
- 3 Why I'm on the brink of burning my Israeli passport
- 4 L'Oreal cuts ties with Belgium supporter Axelle Despiegelaere after hunting trip photographs
- 5 The true Gaza back-story that the Israelis aren’t telling this week
Sustained immigration has not harmed Britons' employment, say government advisers
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£50000 - £70000 per annum: Harrington Starr: Business Analyst Consultant (Fina...
£300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...
£28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...
Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...
Day In a Page
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
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square