Jonathan Miller: Henry Dixon has used his investment approach since 2008 and brought it to the Man GLG Undervalued Assets fund in 2013. At that point Jack Barrat was appointed co-manager and since then a couple more analyst hires have been made. The process looks to identify two types of stock: those trading below their estimate of the company’s asset value and those where the company’s profit stream is being undervalued relative to the cost of capital.
The portfolio therefore has a value bias relative to peers, but the process also seeks to steer the managers towards elements of balance sheet quality and positive earnings momentum.
Performance over the life of the strategy has been strong and our conviction of this very strong proposition is based on capable portfolio managers who have demonstrated ability to consistently execute a well-informed process with discipline. So, the fund retains its Morningstar Analyst Rating of Silver.
Fidelity UK Smaller Companies has two named managers, Jonathan Winton and Alex Wright. But since Wright took on Fidelity Special Situations in 2014, it’s Winton who has been increasingly influential in terms of stock selection and portfolio construction. Ultimately he’s been the lead decision-maker here for some time. The portfolio is built from the bottom up and continues to follow a well-defined process.
The manager seeks stocks that offer strong downside protection with unrecognised growth potential, which will include internal and/or external change. He looks to buy into these situations at an early stage, holding them as operational change comes through and market perception improves. Returns since Winton became more influential have been well-ahead of the index and we believe the investment philosophy has remained intact. The fund retains a Morningstar Analyst Rating of Bronze.
The Fundsmith fund was launched in 2010, shortly after the group was founded by Terry Smith. His philosophy is to buy and hold, ideally forever, high-quality businesses that will continually compound in value. With a global remit, he looks for companies with little need for leverage, an above-average cash return on operating capital employed, and an ability to sustainably grow at this rate of return.
This results in a concentrated portfolio of around 30 stocks with very little change in holdings year-on-year. There are elements of sector concentration, as certain parts of the market don’t fit his criteria and returns may look at odds with the MSCI World Index. But we think Smith has a good handle on the risks and over the long term will serve investors well.
While returns have benefited from style tailwinds since launch, we believe Smith has added significant value above and beyond the fund's style bias. This offering has been a huge success, growing to a huge £15 billion and our conviction remains high in the fund's ability to outperform in the long-term. So, we reaffirm its Morningstar Analyst Rating of Gold.
