Emma Wall: Hello and welcome to Morningstar. I am Emma Wall and I'm here today with John Chatfeild-Roberts, manager of the Jupiter Merlin Growth Fund.
Hello, John.
John Chatfeild-Roberts: Emma, good morning.
Wall: So, you're here today to give three fund picks, what's the first one?
Chatfeild-Roberts: Well, the first one I've chosen is Terry Smith's Fundsmith Equity Fund. It's a balanced fund of developed market equities that has very low turnover and in fact they show negative turnover figures, but that's due to money coming into the fund. It buys some companies that might have heard of like Unilever, it buys others perhaps lift manufacturers that you might not have done. It's all about companies that as he puts it don't need our money. They are not going to have rights issues, they have lots, lots and lots of small transactions which bring their money in and they just keep gently compounding over the years.
Wall: A lot of what Terry Smith holds could be described as bond proxies, which some U.K. equity managers have been saying may get hit when interest rates start to come up. Is that something you are concerned about? Or are these companies are so cash generative that they are – I think he once said, you could just buy them and bury them in the garden and never dig them up again.
Chatfeild-Roberts: Well, it's interesting, if you look at history, sometimes you can buy these things when they are the most expensive they've ever been. But if you hold them long enough, actually you come out ahead and we do live in this age where you've got QE in the background and that is depressing bond yields, and bond yields could well be low for a very long time. They've already been low longer than the First World War – sorry the Second World War.
Wall: And what's the second fund today.
Chatfeild-Roberts: The second fund I thought we'll talk about was Findlay Park American. Now that's run – headed up by James Findlay, and I've had money with James Findlay since 1992, which makes me sound possibly fairly boring. He left Foreign & Colonial in 1998, set up this fund manager group called Findlay Park. It was him and Charlie Park to start with. They've almost got a monopoly on some of the best American fund managers in this country. And everybody says the S&P 500 is the index that is most difficult to beat. When you look at that James' and his team's long-term track record, they absolutely trounced S&P 500.
Wall: How are they able to do that? Because you're right, the S&P 500 is one of those markets where quite a lot of people opt go passive because finding a manager that can outperform such a transparent and efficient market is extremely hard?
Chatfeild-Roberts: It's all about putting the work and using the shoe leather, as people like to say. James has always had value bias, so he has always been looking for those little gems that haven't been uncovered by others. It's got more difficult as the market has become more analysed. But they've got a lot of people covering a lot of areas. They've always tried to look one step ahead, so they used not to do technology, they've got a little bit of technology now. They started up a Latin America part with Rupert Brandt, which has had its ups and its downs. But they are genuinely very talented investors and there just aren't many talented investors out there.
Wall: What's the third fund today?
Chatfeild-Roberts: The third fund is one of our and it's called Jupiter UK Special Situations. All these funds we hold in Jupiter Merlin Growth. It is run by Ben Whitmore. Ben's been at Jupiter since 2006, before that he was at Schroders, again a man with a value tilt to what he is doing. He is a very cerebral fund manager. Low turnover, really thoughtful, doesn't speak that often, but when he speaks, you really listen to what he's got to say and his record bears him out.
Wall: Is his style then, does it have anything to do with what's going on in the macro backdrop or is it much more about stock selection, because you've mentioned two U.K. managers there, they have completely different styles.
Chatfeild-Roberts: Well, Ben is very definitely a stock picker. All the – as he would put it, the global macro noise is just that noise. He is concentrating on his company's, what they are doing and particularly what their valuations are compared to what the prospects are for their future.
Wall: With those two managers in mind, with Terry Smith and with Ben Whitmore, you've got two U.K. equity managers, so I think that does highlight actually that looking just on the face of it at region, doesn't necessarily give you an idea about how to blend funds. You need to go deeper than that.
Chatfeild-Roberts: Well, if you look at Terry Smith, I personally I would say, he is more of a global investor. But the interesting thing is, if you look at the companies and then look at where the cash flows are coming from, KONE lifts for instance has a lot of business in China. If you look at the FTSE 100, and obviously a U.K. fund such as Ben Whitmore's is U.K. focused, I think Tesco the last time I looked was 14th on the list and that was the first time that you got a company that had the majority of its earnings coming from the U.K.
So, many markets and particularly the U.K. are very international. So what you're actually getting with an investment is not necessarily exposure to the U.K. domestic economy. You're getting global exposure.
Wall: A lesson in why it's so important to look under the hood.
Chatfeild-Roberts: Very definitely.
Wall: John, thank you very much.
Chatfeild-Roberts: Emma, thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
