Holly Black: Welcome to the Morningstar Manager Checkup. I'm Holly Black. With me is Peter Brunt from the Morningstar Manager Research team. Hello.
Peter Brunt: Hi, Holly.
Black: We've got three funds to talk about today. We've a bit of a theme, they've all got three managers.
Brunt: That's right.
Black: So, where would you like to start?
Brunt: Let's start with Lindsell Train Global Equity. That's run by two of the co-founders of the firm, Michael Lindsell and Nick Train. They had a third co-portfolio manager join them a little bit – a few years after the strategy was launched, James Bullock. They invest globally as the name would suggest. But there's some pretty clear biases to the areas of expertise of Nick Train and Michael Lindsell, which is the UK and Japan, probably a little bit unusual in that respect. A very focused portfolio, just under 30 names. Real clear focus on quality. They are looking for companies who have a very strong business franchise, little debt on the balance sheet and have very defendable business models.
Black: So, this strategy has done so well in recent years that they've now got, what is it more than £9 billion?
Brunt: Yeah, that's right. It is.
Black: Is that become a bit of a too big to steer the ship?
Brunt: Yeah, well, that's very topical at the moment in terms of capacity. We look at that very closely. The fund is nearly £9 billion. They have a little bit more than that in segregated mandates. We do modeling. We have our own liquidity tool. As it stands, we're comfortable with the level of assets. The largest level of ownership is around 13% in one name. It's something that we watch, but currently we're okay with it.
Black: Okay, so another recovery fund and one that doesn't have the assets problem is Schroder Global Recovery.
Brunt: Yeah. So, this is quite different strategy from Lindsell Train. Looking very different parts of the market, they are following a deep, deep value strategy. Looking for companies that have been pretty sort of out of love, the markets out of love with them, trading on very, very cheap multiples. And they are trying to find those that are – they think they're going to recover ultimately, and avoid value traps, which is pretty key in a valley strategy.
Three managers again, two of them were leads on the UK strategy, which they managed for a longer period. This strategy has been in existence since 2013. The UK Oeic that we're talking about today has been in existence since 2015. They have a very strong process, underpinning it all. And they have pretty decent resources as well, helping them do their fundamental research.
Black: But value has been a really hard place to be.
Brunt: It has.
Black: So, has that affected your rating?
Brunt: No. So, you know, we're not taking a view on whether value is going to outperform, or growth is going to outperform. What we're trying to do is pick funds that we think are – offer you the best opportunity within that investment set. So, you know, if you believe that value is going to outperform over the long term, many do. Right now, you're right. It has faced headwinds for a very long time. So, the fund performance doesn't look that great. If you believe that over the long term, it's going to come back into favor, then we think this is a really good strategy to hold.
Black: Okay, and our final fund for the day is Artemis Income.
Brunt: That's right. So, not a global strategy, looking just at the UK market. Again, three managers, Adrian Frost, he's been on the strategy since 2002. A couple of other managers that have joined him a bit later on.
Black: This three managers thing, is it a case of too many cooks spoil the fund. Is that a worry?
Brunt: It can be a worry. It's a fair question. In the case of Artemis Income, I would say it's a good example of where having more than one, sort of what it can do is it alleviates any key person risk. So, they had Adrian Frost, they had Adrian Gosden and Nick Shenton. And Adrian Gosden actually left the firm in 2016. And so rather than just being one manager leaving, you're left with two. And so, there's an element of reassurance that there are other people that can steady the ship, if one leaves. So, in that instance, you know, Nick Shenton is still there, Adrian Frost is still there, they've been joined by another Andy Marsh and we think their dynamic is actually becoming more stable, and it's quite positive. So, that's something that we're just watching.
Black: So, we're keeping the Bronze rating on that for now.
Brunt: That's right. So, you know, there are things that we liked about this. Adrian Frost has been managing it in a very consistent manner for a very long time, clear focus on cash flow – free cash flow generation. And it's running a very cool-like fashion. So, you know, they're not trying to do anything particularly clever. They've just been very good at delivering solid returns over a very long period of time.
Black: Well, thank you so much for your time.
Brunt: You're welcome. Thank you.
Black: And thanks for joining us.
