In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This time our interviewee is Gresham House portfolio manager Ken Wotton, who manages several funds, including the Morningstar 4-star rated Strategic Equity Capital plc (SEC) and the Morningstar 5-star rated LF Gresham House UK Multi Cap Income Fund.
Which Sector Shows The Biggest Promise in 2022?
The UK leisure sector is my top pick for 2022. It has a combination of: cheap valuations; rapidly recovering footfall; revenues and earnings; repaired balance sheets; reduced competition from struggling independents; and the best property dynamics for well over a decade supporting profitable expansion and improving returns on capital. Restarting or increasing dividends should also enhance returns.
What's The Biggest Economic Risk Today?
The conflict in Ukraine and the risks associated with a further escalation continue to weigh significantly on market sentiment. The economic ramifications of sanctions have accelerated the global market sell-off and exacerbated concerns about supply chain disruption and inflation. Inflation is already being felt in the UK and wage inflation in particular could depress corporate margins across the board. These circumstances can drive fear and hasty activity among investors, but we believe our portfolios, which prioritise high-quality fundamentals, pricing power, robust financials and long-term value creation, are well-placed to navigate the current environment.
Describe Your Investment Strategy
We use the phrase “a private equity approach to public markets”. That means a focus on quality business fundamentals, rigorous due diligence and an actively engaged relationship with our portfolio companies seeking to provide advice, good governance and value added introductions to our network of professional contacts as well as providing capital.
Which Investor Do You Admire?
Steve Jobs, the former CEO of Apple. He had an unparalleled vision for what was possible, the drive and resilience to execute it, and a relentless focus on maintaining the highest standards at all times to make the business and the products the best they could possibly be. He genuinely changed the world and built the foundations to create the most valuable company in history.
Name Your Favourite "Forever Stock"
Games Workshop – it's got global scalable growth, a capital light business model, strong intellectual property, strong management with a track record of delivery, attractive margins, returns, cash generation and dividend record. It's a long term compounder.
What Would You Never Invest In?
Oil exploration stocks. They're capital intensive, highly technical, highly speculative, have limited visibility, carry governance issues and commodity price risks, as well as currency and political risk. It's the wrong balance of risk and reward for my appetite.
Growth or Value?
Growth, because that’s what drives fundamental progress in society, not just making money. However, I want to invest in quality growth companies at reasonable prices. In the small cap world you can get both because you get to find things before everyone else, which is what makes it all the more exciting
House or Pension?
Pension, because you can generate returns from a flexible set of opportunities over the long term, and not just rely on one asset subject to the ebbs and flows of the cycle.
Crypto: Brilliant or Bad?
It's a speculative bubble sitting on top of something with real potential and the opportunity to deliver real progress. It’s a market where people make money out of an informational advantage but if confidence in the underlying system is damaged it’s going to be very messy. I prefer to invest in things I can really understand.
What Can be Done to Increase Diversity in Fund Management?
Hiring on merit and focusing on output, resilience, drive and intellect, rather than experience or background or gender. Initiatives like 10,000 Black Interns are important to start the process of levelling up access to experience. Better opportunities for flexible working and the end of face-time culture are essential to attract more women into the industry and, importantly, keep them here.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
I’m proudest of my long-term engagement with Netcall, a software business focused on customer engagement and process automation. I’ve been the largest investor in the company for over 12 years and have backed it with capital, supported strategic change, introduced a new board director with specialist expertise, supported acquisitions, and put my neck on the line to prevent the company being sold. It is now thriving and starting to be recognised as the innovative valuable growth SaaS business it has evolved into.
What's The Best Bit of Advice You’ve Ever Been Given?
If you don’t understand a business after management has explained it to you once, it might be you. If you don’t understand after it's been explained a second time then it is almost certainly them.
What Would You Be if You Weren’t a Fund Manager?
I would probably be working in the music industry. I’m passionate about music and would have loved to have been able to find a career that married that with the intellectual curiosity and competitiveness that makes me love fund management.
