Co-manager of the Premier Miton UK Growth Fund
A right-left combo
As we near the end of 2022, investors are reeling from an unprecedented right-left combination of geopolitical turbulence, an aggressive shift in monetary policy and financial market turmoil. Many are reluctant to sell ‘yesterday’s winners’ and hold out hope that they will bounce back. What happens if they don’t? What happens if we truly have moved beyond the era of ‘easy money’?
In that case perhaps we must acknowledge, in the wrestling match with Mr Market, our opponent is no longer a friendly, slightly pudgy sparring partner offering sugary snacks of QE and low inflation, but a four-hundred-pound silver-back gorilla? If we are undergoing a trend change in financial markets, then what we need is an investment process that is designed to thrive when managing a sizeable and unpredictable macro-economic opponent.
Taking off the growth v value blinkers
With Jon Hudson, I manage the Premier Miton UK Growth fund. It’s an actively managed portfolio focused on companies based in or which have a significant part of their business in the UK. We have been managing it together for the last 5 years through both bull and bear markets, and we feel its process is particularly well suited to the changing macro-economic conditions we see today.
The Fund was designed to be resilient during periods where the external market conditions are unpredictable. What is clear today is that the investment environment is undergoing change and turbulence in capital markets is an external sign of this. Conventional investment thinking sees the world through the blinkers of ‘growth’ or ‘value’. The changes and transitions we are seeing today unsettle this very binary view of the world. What we believe is key is having a process that accepts the world is non-binary. A process that seeks those companies’ exhibiting qualities that give them long term advantages in a changing world.
So back to the gorilla in the room. What approach do we take to investment markets today?
Great teams probably don’t think alike
The Premier Miton UK Growth Fund’s process was designed by its current managers, over five years ago. It side-lines the conventional wisdom of bringing together like-minded individuals or ‘group think’ as psychologists sometime call it. Our process is based around diversity of thought, combining two investors that frame decisions very differently.
One is an unashamed value investor, while the other shares the long-term approach of a growth-focused investor. So, is the fund just two buckets of companies that helpfully fall in line with these tried and tested investment styles?
No, is the short answer. Neither Jon Hudson nor I are as blinkered as these terms suggest. In fact, we seek companies that exhibit both growth and value characteristics and importantly today are well placed, in our opinion to thrive in a turbulent economic climate.
Capturing behavioural change
How has our process identified what we consider interesting opportunities for our investors, today? Such companies include self-directed investment platform IG Group and brokerage firm TP ICAP. Both companies are market leaders in their industries, major beneficiaries of their scale and market reach, and both typically experience increasing client activity when investment markets are volatile, as they are today and are likely to remain for some time.
Other companies the Fund owns may stand to benefit as low-cost providers of products and services that offer financial savings to consumers, such as B&M, Gym Group and price comparison website Moneysupermarket. This plays into a retail consumption shift towards value providers.
Finally in a low growth world, governments and the private sector are increasingly focusing on productivity. Cyber security, 5G connectivity and built infrastructure are all areas of investment being considered. The UK has some leaders in these fields: NCC, Spirent Communications and Legal & General for example. These examples are to help bring our portfolio to life, rather than a recommendation to invest directly.
New trend, fresh thinking required
If a trend change is underway in financial markets, an approach that marries both value and growth, and embraces a shifting world seems the right one to follow. As incongruous as it might sound it is these different approaches that can enable consistency and success. To illustrate how this works I’m going to build out my wrestling a 400lb gorilla inference a little further.
Hunting high and low
To illustrate how this works, call to mind a hunter seeking its prey. A Sioux hunting caribou in the American northwest would use the landscape to his benefit, often chasing his quarry into a gorge where there is a narrow exit point where the kill can be made more easily.
These hunters are experts with the bow and arrow, which can bring down large animals at a distance. However, put these hunters into a different environment, and the same strategy does not apply. In the dense rainforest of the amazon jungle, a long chase is impossible for the hunter, and the longbow ineffective.
The Yanomami hunter uses stealth and speed to catch his prey, such as the monkey. Rather than a longbow, the delicate precision and expedience of the dart and blowpipe are what’s required. Both techniques are highly efficient, but only in the appropriate environment. Both Jon and I have different toolsets that we look to harness.
Diversity of thought married with consistency of process
Think about the best teams. Chances are they are likely made up of some very different characters, with very different skills, backgrounds, and experiences. From a business board to a wrestling tag team, to an investment management team – it is no different. Jon and I are different, and we embrace that.
Jon is laser-focused on the near-term factors impacting company earnings and seeks to identify under-appreciated risks to profit margins and cash returns. I view companies with the ‘panoramic’ lens on, looking at longer term investments made and how these might shape a company’s future market position.
For a company to be selected for inclusion in the Premier Miton UK Growth Fund, it must meet both our requirements. This is a tall order and to draw on the hunting analogy, it is why we let many of the companies we look at pass us by before we release the proverbial investment arrow, when we find exactly what we are looking for. The commitment to seek the bull’s eye, that narrow window of overlap where all our requirements are met is what drives us.
As the investment landscape changes and evolves over the coming years such an approach may well be the one to bring home the bacon.