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10 minutes with…Tom Ewing

By James Smith

Tom Ewing took over the under-performing Fidelity UK growth fund in December 2007, promoted at the time as indicative of the group’s wealth of analyst talent.

He was previously Fidelity’s leading natural resources analyst, covering three sectors in a seven-year spell before moving to fund management. The vehicle has posted top-quartile numbers under his tenure, despite a baptism of fire throughout 2008 – a learning experience he says he is glad to have survived.

Ewing looks for under-appreciated growth stocks and this means his portfolio is much broader than the usual miners and tech names.

“I firmly believe earnings drive stock price and I want to invest in companies where the market is underestimating growth in the next two to three years,” he says.

“This means a typical holding period of 18 months to two years.”

Under the general banner of underappreciated growth, Ewing seeks opportunities in three main areas.

First are obvious growth stories with solid franchises, which he says tend to be found at the large-cap end of the market, including Unilever, BG and Rio Tinto.

Next is what Ewing calls something for nothing stocks, where a company is well known but has a product or service below the radar, for example, Diageo’s Scotch business, Mothercare’s global arm or Shire’s drug pipeline.

Finally come the companies, typically at the smaller end, where the market seriously misunderstands the growth opportunity – Cookson, Virgin Media and Ocado.
After his turbulent first year, Ewing concluded a macro-economically balanced portfolio is key, with limited ability to get an edge on peers via these big top-down calls.

“In contrast, Fidelity’s access to company management and research resources means we can get an edge through stockpicking so I moved to a broad economic balance, avoiding a situation where all the growth comes from China or technology,” he says.

This usually means a beta in line with the market, with Ewing looking to add a further 3-5 per cent annualised over the medium term through his stockpicking.
Since the market turned in 2009, he says bottom-up calls have been key to performance, owning Barclays rather than Lloyds or RBS, BP versus Shell and Novo Nordisk rather than UK counterparts AstraZeneca and GlaxoSmithKline.

Other top-performing stocks have included Virgin Media, Randgold, Ocado, PZ Cussons and Cape.

Oil is a modest overweight at sector level, with Ewing focusing on service companies as he feels there is not enough equipment to meet ongoing production requirements.

“We know from history that the share prices of oil majors such as BP are not that correlated to the oil price itself and we currently see the stock as a special situation,” he says.

He remains positive on BP and held the company throughout last year’s upheavals, predicting it will not be found guilty of gross negligence over the Gulf of Mexico spill.

“BP used last year’s disaster as a catalyst for change, selling off lower-growth assets and improving its future growth outlook,” says the manager.

“We sold some of our shares straight after the incident and then spent much of the next few months analysing the situation. We bought back aggressively in late June, by which time the hysteria was greater than any long-term impact on the company.”

Looking at current market conditions, Ewing says the macro is dominant and, in line with his getting an edge by stockpicking approach, he spent a recent afternoon with Mothercare discussing its international rollout strategy.

“Periods of such dislocation are the time to focus on company fundamentals more than ever,” he says.

“UK corporate earnings remain strong and most lead indicators, barring the weak consumer, look positive. Many companies are sitting on substantial cash piles and have their balance sheets in good shape, which could mean we see more opportunistic merger and acquisition activity this year.”

Against negligible returns available on cash, an unclear outlook for property and bonds arguably coming out of a bubble, Ewing says equities remain attractive, especially funds that can outperform the benchmark through stockpicking.

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