Jonathan Miller: Welcome to the Morningstar Manager Check-up, where we start with our analyst rating update on Artemis UK Smaller Companies. This is managed by the experienced Mark Niznik, alongside Will Tamworth who was promoted to co-manager last year. The approach is focused on investing in smaller companies with strong business franchises, at attractive multiples, while paying close attention to free cash flow yield.
There’s only 5% in mid-caps so the portfolio’s very much biased toward the smaller end of the market. This results in an average market cap that’s meaningfully lower than the category average. There’s around 40% in micro caps and turnover in the portfolio is reasonably low, at 20% to 30%, reflecting the long-term mindset. The consistent approach has outperformed under Niznik’s tenure and the fund retains its Morningstar Analyst Rating of Silver.
Next up is the Royal London Sustainable Leaders fund. Mike Fox has been at the helm since 2003 and through his sustainable screening, there’s around 120 UK stocks meeting the required criteria. There’s barely any energy or basic materials exposure, so over a period when they outperform, like last year, the fund can be held back relative to the index. Tobacco is also off limits. Fox then looks for long-term growth opportunities that have been mispriced by the market. He also invest overseas where it’s difficult to get exposure to themes via UK-listed names.
This is especially true for technology where Amazon, Alphabet and Microsoft are key positions and have been drivers of returns. We believe this remains a strong choice for investors who have a sustainability mandate in mind and the fund keeps its Analyst Rating of Bronze.
Finally, GAM Star China Equity, which we believe is one of the most attractive propositions in the category but it’s not for the risk-averse. The key appeal is the manager Michael Lai, who’s managed the fund since launch in July 2007 and brings 27 years of experience to the table. He brings a unique perspective when investing in China and has shown to be an expert at both identifying attractive sectoral themes and individual stocks.
Lai is supported by a small team and looks to add value by picking companies that exhibit positive earnings revisions at reasonable valuations. It’s important to note that returns can be lumpy given the sector-specific downside risks and benchmark-agnostic approach. Through market cycles though we remain positive on the potential for outperformance and we maintain the fund’s Morningstar Analyst Rating of Silver.
