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 week our interviewee is James Smith, manager of the Premier Miton Global Renewables Trust.
Which Sector Shows the Biggest Promise in 2023?
My investment trust invests exclusively in the renewable energy sector, so I would have to say that. It could also be true given the urgent need to decarbonise the global economy. However, if I were forced to choose another sector, I would pick mining, in particular those companies extracting rare earths and base metals. The energy transition is going to need substantial resources, and of course that also comes with environmental challenges that will need to be managed carefully.
What's the Biggest Economic Risk Today?
This may seem like going back to the past, but I do not think the whole Europe/Euro economic conundrum is in any way settled. The Covid response has allowed for much ‘down the road can-kicking’, but an end to quantitative easing puts those European economies with large budget deficits and even larger government and private sector borrowings, in a difficult position. I am not clever enough to understand how the European Central Bank solves this without a full fiscal transfer union (which I think is unlikely). It is one of those things which could get very messy very quickly.
Describe Your Investment Strategy
I try to hold good companies for the long term but be flexible enough to change allocations quickly if the need arises. Renewable energy investment is a long game, large projects can take years to develop and build, and have long operational lives. I think there are opportunities in those companies that have substantial “pipelines”. The key here being a stock of future projects that are currently on the drawing board and do not contribute to near term earnings but may not be properly reflected in valuations.
Which Investor Do You Admire?
Anyone with the courage to believe they are right when the consensus is wrong. If I had to pick someone, it would be the late Tony Dye, who during my very early years as an investment professional, had the courage to stick to his convictions, despite what must have been enormous pressure. Unfortunately, he was dismissed before he was proved correct. In the last years before his death in early 2008, he frequently warned of a dangerous housing bubble but was again dismissed by mainstream thought. Sadly, on this occasion, he did not get the satisfaction of seeing his vindication.
Name Your Favourite 'Forever Stock'
Picking one of the trust’s wind or solar companies is a little too obvious, so I am going with Drax Group, which uses sawmill and forestry waste to generate electricity. I also believe it is likely to be a beneficiary of the US Inflation Reduction Act, one of the aims of which being to support investment in Biomass Energy with Carbon Capture and Storage (BECCS), in which Drax is a world leader.
What Would You Never Invest In?
Buy to let property. Anything in Russia. Anything in Argentina. Restaurants. Cupcake businesses. Stamps. The list is almost infinite.
Growth or Value?
Value. It is always possible to pay more for something than it is worth, no matter how fast it is growing. Solid repeatable returns matter most; returns that are high enough to make the investment attractive, but not too high to attract adverse regulatory scrutiny or aggressive competition. There is not much point investing in a business that cannot make a profit, irrespective of its top line growth.
House or Pension?
It would be best to have both. But of the two, pension. It is no good having a nice house if you cannot afford to enjoy it.
Crypto: Brilliant or Bad?
Bad, and not just because I have not invested in it. Perhaps it is my ignorance, but I cannot see what crypto offers that gold does not. New crypto currencies are invented all the time, so I do not buy the idea of limited supply. That is not something you can say about precious metals. Lastly crypto “mining” seems to me a scandalous waste of electricity and source of unnecessary carbon emissions.
What Can be Done to Improve Diversity in Fund Management?
Most people think of diversity along ethnic or gender lines. I think it is equally important to encourage students from less well-off backgrounds to aim for professional careers, including in finance. A more pro-active approach, with companies identifying and sponsoring promising students from state schools, helping them through university, together with on-going mentoring programmes, may help in making the fund management sector open to all irrespective of background.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
I will not embarrass any individual companies but will say that being only a small trust, it is difficult to have much influence on larger companies. I try to get to know the management of the smaller companies I invest in as best I can, turning up to events and being supportive where merited. I find people are more likely to listen to you if they know who you are.
What’s the Best Advice You’ve Ever Been Given?
For investment it is always worth remembering Warren Buffet’s two golden rules. On a personal level, my father always told me never to borrow money to buy something, unless that thing is a roof over your head. Perhaps this inherited frugality is why you will always find me driving old high-mileage cars.
What Would You be if You Weren’t a Fund Manager?
Because I am still a schoolboy at heart, it changes week to week. At present I quite fancy seeing the world as the captain of a container ship – running on renewably made synthetic shipping fuel of course.
