The latest fund tip, hand-picked by our Investment Guidance team.
Fund of the Month December 2019
Surveys published by major British pollsters put Boris Johnson’s Conservative party ahead prior to the election this month. This will generally be supportive for the Pound and UK businesses, and therefore selecting a manager to get the best out of this will be important.
Reasons to buy
- Invests in high quality businesses at discounted prices with a high level of conviction shown through willingness to hold investments forever
- Has a very strong track record of delivering impressive risk-adjusted returns since inception
- Investment process is well thought out, robust and is adhered to consistently – meaning only the best companies from the managers point of view are selected at inexpensive prices
- There is a diverse mix of companies in terms of sectors and market capitalisations, with excess cash reserves allowing opportunities to be exploited on more readily
Things to be wary of
- There is a high degree of key man risk as Keith is involved all aspects of managing the fund, and the team is small compared to industry peers
- The concentrated nature of the holdings means the fund could potentially suffer in market sell-offs, however downside risk figures are very strong
- In terms of cost, the fund could be deemed as a little on the expensive side when compared to peers, but strong outperformance makes up for this
About the fund
The fund is a concentrated equity strategy seeking to achieve performance which is superior to both its peer group and the UK stock market over the long-term (5 to 10 years). Keith Ashworth-Lord, the manager of the fund, has over 30 years’ experience in equity markets and applies a well-defined high conviction stock selection process to create a portfolio of multi-cap UK equities. Unconstrained by benchmarks, the process seeks to do something different from the crowd by employing Business Perspective Investing – helping it to have lower levels of historic correlation compared to its peers.
Business Perspective Investing is the idea that over the long term, a company’s share price performance is in direct relation to the success of the company – therefore meaning the ideal holding period is forever. Keith finds investment opportunities by locating excellent businesses trading at discounted prices. Initial screening narrows down a 3000-strong universe of stocks to a watchlist of 40-60 names exhibiting good levels of profitability and return on equity, strong free cash flow generation and a robust growth record. Stocks are then put through the manager’s proprietary financial model as well as discounted cash flow models in order to forecast growth and valuate the company. The manager will open a position at 2-3% of the overall fund should a suitable company be at the target price level identified.
Portfolio positioning and performance
The long-term approach and focus on superior businesses with high economic worth creates a high-conviction portfolio of between 25-35 holdings. The fund is style and benchmark agnostic, with portfolio composition dictated by bottom-up analysis. As a result, it is unlikely the fund will own companies in areas such as; banks, mining or oil & gas exploration. The manager generally has a high proportion of cash compared to peers, likely borne out of his robust adherence to only investing at the target entry price. This can create a drag in rising markets, but also provides potential for opportunities to be capitalised on more easily should they arise.
The track record for this fund is impressive, delivering more than 120% in returns over the last 5 years, although past performance is not necessarily an indication of future performance. This has been achieved without taking on excessive amounts of risk as well – resulting in superior risk-adjusted returns over both 3 and 5 years when compared to peers within the IA UK All Companies sector. Investors must, however, be cognisant of the concentration of the underlying holdings as well the fact the fund is still susceptible to wider market volatility. Still, when held with a long-term view, the fund has the potential of continuing to deliver strong returns to investors.
Please note: both the TC Share Centre Multi-Manager Cautious and the TC Share Centre Multi-Manager Balanced Funds are invested in the CFP SDL UK Buffettology Fund.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.