Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Jamie Ward. He is Manager of the Crux UK Core Fund. Hello.
Jamie Ward: Hi.
Black: So, plenty to talk about in the UK at the moment. What's it like to be a UK fund manager this year?
Ward: Different, certainly. I mean, obviously, working from home has changed things quite a lot. The market seems very unpredictable. I don't think many people have seen markets only down as much as they are given what's been going on. But I guess the extraordinary central bank interventions we've seen have pushed a lot of liquidity through capital markets and invariably that's led to a sort of passive bid in equities. So, you're sort of being clinging on, sort of riding the rally ever since the lows in March which is making it quite interesting.
Black: Does that make it difficult to pick stocks because it's not necessarily the fundamentals that are driving them at the moment?
Ward: Extremely. I mean, I guess, A, fundamental is driving them but it's not your sort of typical value dynamics that you might expect. There are certain equities which – I admire the businesses I don't own in the fund simply because I can't square the circle of their valuation. So, a business like Spirax Sarco which is one I've sort of followed for a very long period of time but I look at it on a P/E ratio sort of in the mid-40s which is a business that's been around for 30 or 40 years on the stock market and it's historically been a sub-20 P/E business. So, by not owning these things you sort of – you handicapped your performance but at the same time you look at them and you think I can't understand how I can own that and make sense of the valuation.
Black: That's a real quandary. So, I noticed that a lot of the portfolio – well, not a lot but a significant chunk is in financial stocks. Is there a reason you particularly like that sector?
Ward: Yeah. I mean, I think – I mean, particularly banking in my case. There's a little bit outside banking, but it's largely banking. I think the first thing is investors have sort of looked to the last 10 years and people have been rewarded for not owning banks for a long period of time and I think it's because a lot of people were sort of burnt so badly in the 2008-2009 period that people sort of ignore them now. And that's created this situation where I think banking stocks in particular are very, very cheap businesses. But it's a lot more than that because I think they are a lot of better businesses than people think they are. And I look at some of the banks and I think I can see how they can become more valuable. But if I'm buying them in the stock market, I'm getting them at a discount of perhaps 50% in some cases. At the same time, once we get through this period where the FCA is curtailing dividends or actually cancelling dividends entirely, that we could be in a situation where if I'm looking back in 10 years' time, I think people will be looking at the banks and going, that was such as obvious investment, why didn't we do that.
Black: I suppose when you think about it, banks are quite a simple business at their core and what's really capturing people's attention at the moment are tech stocks are disruptors. So, where do you stand on sort of business?
Ward: I mean, I'm very, very happy to own those sorts of businesses but I need to make a case for the valuation as well. And where I find them – find the more interesting ways of sort of playing that is if you can buy businesses which have divisions that might disrupt an area whatever it happens to be. And often because it's a division of a larger business, people don't necessarily pay that much attention to them. So, you can sometimes pick up these assets for much more attractive levels as long as you, sort of, assume a valuation for the – sort of the room for the remaining business.
Black: Jamie, thank you so much for your time. For Morningstar, I'm Holly Black.
