Mark Dampier: 'Invest at home - Britain's got talent away from the spotlight'

Many areas of the British economy are in rude health and have grown strongly since the financial crisis

Mark Dampier
Friday 27 November 2015 22:39
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Are stock markets going to go up or down? It's one of the most frequent questions that fund managers are asked – and one of the most difficult. Most managers hate this question simply because they don't know the answer. They may have their views on the economic environment and trends affecting share prices, but to translate that into a stock market figure is near impossible.

Nigel Thomas of the Axa Framlington UK Select Opportunities fund has one of the best answers to this question: things will not necessarily get better or worse – they will simply be different. Global events will inevitably change the behaviour of companies over time, and new companies will be spawned.

He feels that many investors underestimate the UK's position on the global stage, noting that it is the sixth-largest economy in the world and home to the second-largest aerospace industry, while improved productivity makes it the low-cost manufacturer of Western Europe. Many areas of the British economy are in rude health and have grown strongly since the financial crisis. Automotive output, for example, has grown 50 per cent since 2009.

However, Mr Thomas recognises that we are in a tricky global environment. GDP growth is generally below pre-crisis levels and is likely to stay that way for some time to come. In a climate of slower growth, trading patterns for low-quality companies can change quickly: product orders can be strong one moment, only to crash the next.

Like all good active managers, Mr Thomas takes little notice of benchmarks and focuses instead on what he believes are the winners of tomorrow. ITV and Betfair are the two largest investments in the fund, for example, but only account for a small portion of the FTSE All-Share index. He is positive on ITV as, with more than 5 million viewers turning into 500 slots, advertisers cannot afford to ignore them, despite the march of online advertising.

Betfair, meanwhile, has steadily reduced its debt pile and Mr Thomas expects an attractive dividend to commence in due course.

Turnover within the fund is low and he hangs on to companies that have performed well; in his experience, the winners tend to retain their top spot in a low-growth environment.

Rightmove is an example of a current holding that fits this description. The online property portal has been around for just 15 years and was only listed on the stock market in 2006. However, it is the dominant player in the industry with 83 per cent market share.

Now it is established, Rightmove needs very little ongoing capital investment and is growing the dividend at 20 per cent a year. Lookalikes have been introduced but all have failed to dislodge the company from the top spot.

Chaired by the founder of Rightmove, Autotrader is in a similar position and is also featured in the fund.

Mr Thomas constructs the portfolio based on his view through the windshield rather than the rear-view mirror. Instead of focusing on large, well-established companies that have already performed well, he finds many of tomorrow's winners among small and medium-sized companies.

Although 46 per cent of the fund is invested in the larger companies of the FTSE 100, investments here are not new purchases. Rather, they are successful businesses that have graduated from the FTSE 250 index. This list includes companies such as Inmarsat, which has launched satellites to bring wi-fi to the world's airlines.

Mr Thomas is one of the longest-standing UK fund managers in the industry and shows no sign of throwing in the towel any time soon. He appreciates the job is a fantastic intellectual challenge and enjoys being in a position to meet the best company management teams in the country.

I'll leave you with Mr Thomas's comment on the age of the internet: "Barriers to entry are low, barriers to success are high, and first-mover advantage is huge." Tomorrow's winners are those the right side of these barriers.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds in this column, visit hl.co.uk

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