Emma Wall: Hello and welcome to Morningstar. I am Emma Wall and I'm joined today by Simon Evan-Cook of Premier Asset Management.
Hello, Simon.
Simon Evan-Cook: Good morning.
Wall: So, what's your first pick today?
Evan-Cook: The first pick is in the market that we quite like it, it's GLG Japan CoreAlpha. The reason we like this fund because it's been under the cosh for years now. And we quite like funds that have done that with the proviso it's run by an excellent manager and Steve Harker is an excellent manager with almost unsurpassed long-term record.
So, if you get the opportunity to buy a manager like that, when they've had a bad run and the manager themselves is talking about almost record stretches of valuation, his deeper value stocks versus the more defensive, higher quality stocks, then that's typically a great time to be getting in and sure enough he's had a great six months, but I think that is the foothill if you like of what potentially could be a very long run.
We've got plenty of value within our portfolios, but I get a sense that some people have been caught not having enough value around the last six months or so when you've seen that reflation trade come through, and if you do hold Japanese equities this is the one to look for, because it gives you that value trade and it's got a lot to play for them there's a lots of value in that portfolio.
Wall: A number of Japanese fund managers or fund managers who invest in Japanese equities have made a lot of money hedging the currency. Is that something that he does or is it very much stock picking?
Evan-Cook: He's a stock picker but they have got currency hedge share classes available. So that's on our shoulders and we have done that in the past, and we've done it actually reasonably well out of that, basically following value principles when currency looks expensive then, we'll hedge it out; when it looks cheap, then we won't. At the moment we have some Japanese exposure hedged back to either dollars or sterling.
Wall: And what's your second stock pick or fund pick?
Evan-Cook: Second stock pick is a slightly obscure one, it's off the beaten track, its HMG Global Emerging Markets. Again, this follows a value approach, it's quite useful if we're in reflationary world, and it has a slight niche that it operates in. It is a fund that buys the subsidiaries that are listed in emerging markets of developed market companies.
So, you get good standards of corporate governance which is very important in emerging markets, but you also get the advantage of the parent company passing on knowledge and information and capital to that subsidiary. Now the advantage of this is you're getting emerging market valuations currently and potentially emerging market growth rates, but you are getting that extra level of growth and/or expertise in there.
Now, when you look at the track record of this fund it's going to be a brave person that buys it, because it started about two years ago, the fund manager bought a lot of cheap stocks with no momentum, which meant the momentum carried on, they carried on getting cheaper.
So, the track record does not look appealing at all. But from where we are currently it's a portfolio full of attractively valued stocks, the portfolio yields over 4%, so it's a nice income play too and we think there is an awful lot to play for in this portfolio, particularly if we are going into that reflationary world.
Wall: Now, to me that sounds like the best of both worlds. You've got you know developed market corporate governance and emerging market growth. So why were these stocks so downbeat. I mean, why is the market not realising their value?
Evan-Cook: Because they are tarred with the same brush as emerging markets and everyone has hated emerging market for the last 3, 4, 5 years now. So they've been marked down accordingly because of that but they are so sound these companies because they've got the backing of the parent company that you are in a certain extent taking away some of that risk, and among emerging market fund is one of the least volatile over the period it's been running. So that sort of shows that soundness of those companies.
Wall: And what's the third investment pick?
Evan-Cook: Third investment pick is RobecoSAM Smart Materials, now this is more of a niche fund, we bought it about 2, 3 years ago. Now, for us what we like is we like the fund manager. First of all, we got to think that the fund manager is a good fund manager in his own right, regardless of the theme or the area that he is operating in. And we do believe that.
But secondly, we like the fact that it was a commodity play at a time when everyone hated commodities. So we were interested in going into commodities, we hadn't held any all the way through the top of the commodity bull market and all the way through the bust. So by the time it was becoming reviled, we were starting to become interested again.
But this was interesting because a lot of the stocks that they hold. Say, for example, there might be carbon fiber companies are all trying to replace classical commodities. There is intellectual property in a lot of these businesses. But because they are substitutes their prices were marked down as commodities was selling off, which meant that show you get a chance to buy some really interesting companies, which have got moats as it were which commodity companies typically don't have at a point in their cycle when they were down with luck.
So, you are buying companies that are growing very much more quickly than global equities for a slight discount global equities now. That to us was just singing out very loudly.
And so we brought in and we are quite happy to keep holding that on the basis it is good for manager and over the next 10, 20 years we think that theme of making airplanes more fuel efficient or cars more fuel efficient or generally reducing the weight and the reliance on typical commodities is one that's just going to keep running and running so you've got that nice tailwind behind it as well. So again it is another best of both worlds sort of fun for us and it has done us a great job over the last couple of years.
Wall: Simon, thank you very much.
Evan-Cook: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
