Holly Black: Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is Simon Evan-Cook. He's a manager on the Premier Multi-Asset Distribution Fund. Hello.
Simon Evan-Cook: Hello.
Black: So, not three stocks for us today, but three funds because you help run a fund-of-funds. So, where would you like to start?
Evan-Cook: I'm going to start today with the Teviot UK Smaller Companies Fund. As the name suggests, this is a fund that invests in smaller companies in the UK. Why I particularly like this fund is that it is quite contrarian. It's doing something different at the moment. If you look in the UK smaller companies sector, typically, you'll find funds that are out there trying to find companies that are growing quickly, and they want to sort of ride that growth path. Teviot is a little bit different in that they're more of a classic value investor. They're looking for companies that are perfectly all right. They're not looking for companies that are on their knees or anything. But they're looking for companies that are operating just fine but for whatever reason they are deeply out of favor with investors and therefore they can be picked up at a decent price.
Why I like this is at the moment is that particular way of investing has been out of fashion for some time. In particular, it's been out of fashion this year. So, the types of the companies that these fund managers are picking up at the moment are absolute bargains. So, they're able to go out and find some incredible opportunities that the other fund managers simply aren't getting.
Black: Yeah. I mean, you say it's been out of fashion. I feel like you've hit the investment bingo there with UK, value and smaller companies. What catalysts do you think we need before things do turn around for this part of the market?
Evan-Cook: Well, I think the catalyst for value in general to turn around has to be inflation returning and specifically, not just inflation returning, but inflation driven by maybe an uptick in economic activity, so an improvement. So, maybe if you do see some of the government stimulus, and there has been a lot of it, that's been sort of fired at people over the last few months. If that starts to work and you start to see people going back and spending a little bit more, then that really does sort of suggest that maybe you're going to see some kind of economic recovery.
Black: Okay. What's fund number two?
Evan-Cook: Fund number two is the Polar Capital Global Insurance Fund. Why I like this fund is because it invests in an area that's every bit as boring as its name suggests. Because no one really ever gets excited about insurance companies, you can be fairly sure that it's not the sort of area where prices ever really get far too expensive, and that's not the same thing you could say for certain parts of the market and maybe more specifically, more obviously, tech. Now, why I particularly like this fund currently is it's a fund that we've held for a decade and it's done extremely good job for us. But we like the sort of specific stocks that they're investing in because as a result of the pandemic and the lockdown you have got – a lot of these companies have been marked down a lot and they're offering very, very good value. But they are marked down because there is a few, particularly in the US, which we think is wrong, that they are going to be on the hook for paying a lot of the damages of the lockdown. Having spoken to the managers of this fund, they are very, very comfortable that the insurers had enough in their contracts to make sure they're not actually liable for these. So, they are currently being priced as if they are liable, but really, they're not.
Black: Okay. And what is our final fund?
Evan-Cook: The final fund is one that I'm sure a lot of your viewers will have heard of or come across before because it's very popular with as fund pickers. It's the GLG Japan CoreAlpha Fund. Now, this fund invests in Japanese large cap companies and specifically, again, it's another value fund. Now, why I picked this one is because I think Japan is a very interesting market currently. It's interesting because if you are worried about whether companies generally can survive an economic shutdown, particularly, if there's another sort of bout of Covid-19 that goes around, then the reason why Japanese companies stand out is because generally they've been far too conservative over last sort of 10, 20, 30 years, which means they run very high cash balances. But the sort of other side of that is, it means that actually, they're very well protected. Should you need to shut down, then Japanese companies are in a very good position. Now the managers of this fund are very, very good at picking companies that are very sound. But as the sort of value tag suggests, they are picking companies that are cheap. So, really, what they're doing is picking perfectly decent companies that are very likely to survive this pandemic and anything else that's thrown at them and you're paying very, very low prices for that currently.
Black: Simon, thank you so much for your time. For Morningstar, I'm Holly Black.
