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James Ridgewell

New Star’s UK special situations fund manager is a relative newcomer to the industry but his contrarian approach to stock selection has pushed the fund forward and prompted comparisons with Fidelity special sits superstar Anthony Bolton. Interview by Philip Scott.

New Star has high hopes for its UK special situations fund manager James Ridgewell. In the firm’s Knightsbridge office, there is an air of confidence that Ridgewell could be the next Anthony Bolton.

On May 8, Ridgewell celebrated three years as manager of the UK special sits portfolio – a milestone for any fund manager, typically marking the point at which the masses sit up and take notice.

In the last three years, the 51m fund has achieved a return of 145.4 per cent against a sector average of 85.3 per cent, placing the portfolio ninth out of 255 funds for the period in the IMA’s UK all-companies sector.

He is a relative newcomer to the investment business, having joined Abbey Life as a trainee fund manager in 1997 and moving on to WorldInvest in 1999. At both companies, Ridgewell worked on Japanese equities. WorldInvest was taken over by New Star Institutional Managers in 2001 and for two years he worked with Stephen Whittaker on the New Star growth fund and with Alan Miller on the firm’s hedge fund before taking on special sits in May 2003.

He points out that he was 29 when he took over the UK special situations fund – the same age that Anthony Bolton started working on the Fidelity special situations fund.

Ridgewell says his passion for investing goes way back. “I had an interest in shares when I was quite young, around 15, and I started buying shares when I was 17 or 18.”

He says he falls into the “contrarian” fund manager category and explains: “I buy what everyone else does not want to own. I think fundamentally that is how you get the greatest returns in the long run. For example, I have zero exposure to mining stocks.

“I buy two types of stocks – special situations and undervalued growth stocks. Special situations are the deep and dirty things, buying into profit warnings, companies that are going through a lot of change. Then you have the undervalued growth companies. I believe markets always either overexaggerate or under-exaggerate as time goes by in certain sectors.”

The portfolio has around 100 holdings. Guy de Blonay, current manager of the New Star global financials fund, originally oversaw the running of the special sits portfolio which was seeded with New Star founder John Duffield’s own cash.

Ridgewell says: “What gives you confidence is to repeat what you have done in the past. I have managed it in the same way with the same number of stocks and I do not take big bets.” He says he has faith in his abilities and he has his pension as well as a number of Isas invested in his portfolio.

When it comes to the competition, he says: “I never look at what my competitors are doing. I think that is fundamentally flawed. I do not know what Artemis or the Fidelity special situations have in their funds or what their strategy is.”

Closer to home, Ridgewell says he looks up to Stephen Whittaker, describing him as “the ultimate long-term investor. The lesson I have learnt from him is never to get fazed and do not over-react when things are going against you.”

Ridgewell says the worst part of his job is going through periods of underperformance. “You have days when the market just goes against you and it makes you think that being a contrarian is always a challenge. At New Star, there are managers who have been in the industry a lot longer than me and there are times when you come out of a meeting and they may not like something you like. It does make you question your judgement. The worst thing you can do as a contrarian investor is to fall either in or out of love with a stock and that does happen with managers who have been looking at the market for long periods of time whereas being a contrarian means you have got to try and identify when a company is going to turn and you have got to be ballsy to do that.”

Sometimes things do not go as planned. Ridgewell bought bus maker Henleys and the share price fell dramatically as the firm went through internal restructuring. “It did have several profit warnings and on the first couple I did actually buy more shares rather than sell. It was very cheap. Fundamentally, this should be a very simple business but the management team bit off more than they could chew. Then there were debt issues. Sometimes you do sell out. On that occasion, I doubled up once and then sold out after another profit warning.”

The top 10 holdings have always been only around 16-20 per cent of the fund. The biggest holding, at about 2.3 per cent, is New Star but Ridgewell points out that his employer falls into the growth as opposed to special situations stock category.

“I had 1.25 per cent invested in New Star and when we floated I bought more and basically paid the same price as all the other institutions. New Star was a cheap company, a lot of other fund management companies are trading on 16-17 times earnings, and this is a business when it came to the market that was on a much cheaper rating, operating profit margins that were much higher and growth was much higher.

“I think we are quite optimistic for the future in terms of markets. Recent weeks have been a bit tricky but markets are quite cheap and I think that we are in a nice steady environment, where interest rates are under control. Inflation might be going up a little bit but we have managed to ride out UK inflation as opposed to quite a strong rise in commodity prices over the past year or so.”

What about the pressures of the job? “I manage my bosses’ own money. If that isn’t pressure, then I don’t know what is.”

Born: 1974, Epsom, Surrey
Lives: Soho, London
Education: Degree in economics from the University of Stirling, Masters in economics and finance from the University of York.
Career: 1997-1999 trainee fund manager at Abbey Life, 1999-2001 fund manager WorldInvest, 2001 to present New Star. UK special situations fund manager since 2003
Likes: Tennis (to watch, not play), gym, opera
Dislikes: Arrogance
Favourite book: Harry Potter series, currently reading book two: Harry Potter And The Chamber of Secrets
Favourite film: Four Weddings And A Funeral
Favourite album: Madonna (Confessions On A Dancefloor), Mozart (horn concerto)
Hero: Margaret Thatcher
Life ambition: To be a professional footballer
Career ambition: To remain a top-performing fund manager
If not doing my current job, I would be: An entrepreneur running my own business


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