It is probably fair to say Olim UK equity is a fund name that few people recognise. Set up in 1986 by Matthew Oakeshott and Angela Lascelles, Olim runs almost £7bn across private client portfolios, unit trusts and investment trusts.
The business is now owned by Close Brothers but the founders are still very much involved. The Olim UK equity income fund is tiny by industry standards (and in comparison to the company’s overall assets) at just £8m.
However, it is managed by an established management team of Andrew Impey, who has 28 years’ experience, Simon Jaffe with more than six years’ experience and founder Angela Lascelles.
This small fund aims to find the best stock ideas across the UK market and the managers are looking for shares that pay a good level of income as well as providing plenty of growth potential. This narrows down the field quite quickly. As a result, the portfolio is concentrated at around 30-40 stocks (currently 38) with a typical split of approximately 50 per cent large and 50 per cent small to medium-sized companies, although they have very little in smaller companies at the current time.
Broadly, the stocks are separated into four categories. First, ones with unrecognised growth potential, which are longer-term holdings Olim feels will benefit from strong structural themes. A good example is the holding in Dechra Pharmaceuticals, which has a stable business supplying veterinary medicines as well as a more exciting drug-development side. The latter part of the business is riskier but there is a good pipeline of medications, many of which have already been approved for use on humans.
Second, Olim invests in stable income producers that tend to be larger, defensive stocks, such as GlaxoSmithKline, Vodafone and Royal Dutch Shell. This forms the foundation of the fund’s income and is an area I believe is particularly undervalued at present.
Third, the team looks for recovery or restructuring situations. Examples here include Unilever, a company that is increasing investment, cutting costs and introducing new products. It also has more than 50 per cent of its sales in emerging markets, which could be a huge area of growth over the next 20 years.
Finally, it is looking for valuation anomalies, stocks that are basically just too cheap with a big discount to their peer group. One stock that few people know about is N Brown, a retailer, which, given the economic situation, at first glimpse you might think was an area to avoid. However, it has a very good online business selling what are politely called plus-sized clothes. On a 4 per cent yield and a price/ earnings ratio of 12, it looks cheap and the market is perhaps overlooking it.
One area the management team does tend to avoid is what it calls glamour stocks. This might include mining companies or shares that are generally overhyped. You will not see any blue-sky solar power companies or some unheard of oil exploration stock. With three experienced individuals managing the fund, you do not have to worry too much about changes of personnel. Andrew Impey and Simon Jaffe are the newer entrants with only two years in the company but they seem to be here to stay and are looking forward to growing the fund.
In summary, this is a solid UK equity income team looking in both traditional and less traditional areas of the market. They do precisely what I would want – search for the best stocks with little reference to any benchmark or sector average. Performance has been good to date, with the fund up by 54 per cent since launch in January 2002 compared with 31 per cent for the IMA UK equity income sector.
The fund’s small size is certainly an advantage, making it nimble and flexible. With an income yield of around 4 per cent, you can afford to be patient and wait for the growth to come through.
Mark Dampier is head of research at Hargreaves Lansdown