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 Richard Staveley, lead portfolio manager of the Rockwood Strategic Investment Trust.
Which Sector Shows the Biggest Promise in 2023?
Construction remains resolutely out of favour with investors given a torrid history of company failures such as Carillion. However, the industry has improved its approach to contracting risk and faces an unprecedented need for massive infrastructure investment in the UK in the decades to come. Spending here should prove more resilient than consumer and corporate spending exposed sectors in the weaker economic environment we are entering.
What's the Biggest Economic Risk Today?
Conflict escalation. Wars are expensive and destroy economic activity. There is a material chance that the rivalry between China, whose economy is struggling, and the US, whose political system is failing, manifests itself in conflict. There is a smaller, but non immaterial chance, that the conflict in Ukraine spreads and escalates too.
Describe Your Investment Strategy
We have a concentrated portfolio of small UK companies. The strategy identifies undervalued shares, where the potential exists to improve returns and where the company is benefitting, or will benefit, from operational, strategic or management changes. These unlock, create or realise shareholder value for investors.
Which Investor(s) Do You Admire?
Hugh Sergeant, fund manager at River and Mercantile Asset Management. Hugh was mentor for me at Société Générale Asset Management and we co-founded River and Mercantile in 2006. His long-term track record is outstanding, yet his investment style creates short-term periods of volatility due to a very strong streak of contrarianism combined with a value and recovery mindset. I deeply admire his mental fortitude to hold his nerve, for the longer-term benefit of clients, which has been proven well-founded again and again over his 30-year track record.
Name Your Favourite 'Forever Investment'
There is no such thing. The world is consistently changing and businesses are only extremely rarely capable of adapting successfully for over 100 years. This question implies valuation is not important in investing, when it is paramount. If you forced me, I would probably select Disney: storytelling will never go out of fashion.
What Would You Never Invest In?
Biotechnology companies. My educational science credentials are poor and I have no edge or differentiated insight into judging the risks, likelihood of success and potential of this type of company. Furthermore, they typically don’t generate any cashflow for many years. It would be gambling, not investing.
Growth or Value?
Value. This debate will never cease! In essence, I see a much lower risk approach to investing by biasing one’s decision to value; a company’s free-cash-flow and assets etc and the opportunity to purchase a share at a big discount to that, rather than the much riskier approach of predicting the long-term growth rate of a company. To clarify, it seems to me Growth investors have to have high confidence in their ability to accurately predict how a company will be performing many years from now, which I see as fraught with risk, whilst value investors focus far more on recent, current and near-term cash generation or assets to create a ‘margin of safety’ on purchase. It is plain to see that Growth investors have had their returns massively enhanced for an extended period during the manipulation of interest rates and QE. This is now over, and some investors may be realising their historic returns were not down to their ‘seeing eye’, but merely due to the largesse of central bankers.
House or Pension?
Pension. Whilst a house can be passed down the generations it will always remain a house. A pension, through the effect of compounding returns, can become something much greater than its original size and can also be passed to others for further compounding.
Crypto: Brilliant or Bad?
Bad. It has no inherent value or proven record as a medium of exchange. The sensible concerns crypto-advocates have about the mis-management of paper currencies and the government-linked control they wish to avoid can be perfectly well addressed through owning physical gold.
What Can be Done to Improve Diversity in Fund Management?
I’m not sure anything needs to be ‘done’ as such. I see no biases or prejudices in the recruitment approaches at all the fund management firms I come across, they just want to hire the best and the brightest. I have worked with lots of women and people from different ethnic backgrounds throughout my 25-year career in fund management.
Have you Ever Engaged With a Company and Been Particularly Proud (or Disappointed) of the Outcome?
Engagement is central to our investment approach, we engage actively with every investment we make, typically buying material stakes to ensure change occurs. We have helped evolve management teams, Board and company strategies in many companies over the years. The investment team currently sits on a number of boards as NEDs. A recent highly successful engagement we’ve had was with a company called Crestchic Plc. It got taken over earlier this year and we made 4.8x our money.
What's the Best Advice You’ve Ever Been Given?
Treat others how you would like to be treated yourself. But I would add that my mother advising me to brush my teeth twice a day was a belter.
What Would You be if You Weren’t a Fund Manager?
Professional musician. I played the trumpet to a high standard when I was younger, participating in a number of National Orchestras and even backed the ‘70s band Showaddywaddy once. The tunes of the stock-market ended up being more alluring. I still dabble and will be playing ‘The Last Post’ on Remembrance Sunday.
