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 Hywel Franklin, head of European equities at Mirabaud Asset Management and manager of the Morningstar 4 star-rated Mirabaud Discovery Europe fund.
Which Sector Shows The Biggest Promise in 2022?
Commodities are the hot sector right now, with the war in Ukraine causing dislocations in supply and in turn sharp rises in pricing. Energy and material prices don’t look as historically cheap now as they did at the start of the year, so the risks have increased. Where we see a real opportunity is energy transition, where many of the trends towards decarbonisation are being accelerated by the conflict in Ukraine, encouraging European countries to reconsider their energy mix and independence.
What's The Biggest Economic Risk Today?
I think the biggest economic risk near term is that the conflict in Eastern Europe triggers a meaningful slowdown in economic activity. Beyond this, the cost of living is rising in Europe at a rate which hasn’t been seen for decades. Households will struggle to maintain their living standards and companies will struggle to maintain their margins. We guard against these risks by investing in companies with a real right to win, a competitive advantage they can defend and a growth opportunity which is underestimated by the market.
Describe Your Investment Strategy
The fund is called Discovery and we focus squarely on names which are outside of the mainstream. We use the phrase “the road less travelled” which reminds us that to get better results we need to take a different approach to the orthodoxy. We believe we know what a good long-term investment looks like and seek to find companies with the right characteristics before they are held by the largest mainstream funds.
Which Famous Investor or Professional Do You Admire?
He’s a controversial character but it’s hard not to admire Elon Musk, Tesla’s CEO. He had a vision which was fundamentally about sustainability and how we as humans would need to change to secure the future for our species. Thinking big, pursuing a vision and sticking to his conviction over the long term has made him the richest man on the planet. We believe that sustainable businesses can be great successes when they tap into future growth trends, and he’s clear evidence of just how possible that is.
Name Your Favourite "Forever Stock"
MIPS is a Swedish leisure products business with some of the best business economics I’ve ever seen. It has a hugely profitable and cash generative business which generates staggeringly high returns on capital. It’s in a growth market with rising penetration as it gains more customers and goes global, and it has an excellent management team who have delivered over time.
What Would You Never Invest In?
I never invest with management teams who fail to prioritise the interests of all stakeholders. Part of our focus on sustainability is assessing management’s track record of acting in the interests of shareholders and in anticipating risks around the business. In smaller companies management can be the difference between success and failure of a business.
Growth or Value?
Always, always both. The most successful business in the world can be a terrible investment if you buy it at the wrong price. And some businesses are destined to fail irrespective of how cheaply you buy them. A wise man from Omaha once said, price is what you pay, value is what you get. I’m a big believer that for all investments the best approach is to get the maximum possible quality, returns, growth and protection you can for your money.
House or Pension?
Both. Owning where you live can be a great investment as well as giving you the freedom to put down roots. And building up a pension especially when you’re young, gives you freedom and supports your living standards as you age.
What Are Your Thoughts on Crypto?
The technology is brilliant, the speculation not so much. Blockchain is an amazing technology with the potential to revolutionise how we live and interact. But where I see danger is when I hear about retail investors speculating on Bitcoin with money they can’t afford to lose. It’s not for me; I only invest in things I can really understand and value.
What Can be Done to Increase Diversity in Fund Management?
Growing up as a young black kid in Leeds I had no idea that fund management even existed never mind that it could be a great career choice for me, so I feel a sense of responsibility to speak out as a senior black fund manager. Great work is being done by groups like #TalkAboutBlack/Diversity Project, CityHive, and #100BlackInterns to improve access to the industry, and while more can still be done, we are moving in the right direction.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
In a previous job one of my most disappointing engagements was when I tried to convince Forthnet, a Greek telecoms company I was a major shareholder of, against making a massive, debt funded acquisition as the crisis was unfolding. It didn’t work so I sold all my stock, and sadly Forthnet went bust in the crisis. It was a real lesson to me that size isn’t everything and that engagement works best when you develop a relationship of trust and a deeper partnership with companies.
What's The Best Bit of Advice You’ve Ever Been Given?
Probably that talent is overrated. I think in life anyone can master a skill if they focus and practice in the right way. We might not all be able to be Usain Bolt but we can all improve dramatically in many areas through studying the best and employing some of their techniques.
What Would You Be if You Weren’t a Fund Manager?
Not as happy. Being a fund manager is the best job in the world, endlessly stimulating, consistently challenging, its meaningful and its significant. But seriously if I couldn’t do this anymore I’d like to put what I’ve learnt over the years into practice and join management in a wonderful business.
