George Godber and Georgina Hamilton have been working together for nearly 10 years and still have a long road ahead of them. They met at Matterley Asset Management nine years ago. Following a stint at Miton Group, they recently landed at Polar Capital, where they now manage the £325m UK Value Opportunity fund, which was launched in January.
The new fund gathered more than £100m in its first month, with the duo using the same approach and style as at Miton, where they managed the top-performing Miton UK Value Opportunities fund.
Value investors with a bottom-up approach, Godber and Hamilton tell Money Marketing why their professional marriage works so well, and how they approach the multiple risks investment targets are facing today.
What is your investment process?
Godber: We are 100 per cent bottom- up stockpickers. We start by going through financial statements of companies and working how we can reconcile the cashflow. That excites us more than anything else.
We don’t try to predict politics or interest rate moves. The risks we see are at stock level and at the moment we talk about a lot of risks, such as Brexit, but we look at individual companies and how this might affect them in their particular sphere.
Hamilton: We have three parts of our process that we have to pass. The first is valuation. You have to be cheap, as this is a value fund. Then there is visibility of returns and then funding structure. We need to believe in the level of returns and if there is good financial backing. This approach differentiates us from other value funds.
At the moment domestic shares tend to be cheaper and the overseas shares a bit more expensive because of currency benefit. There are some expensive shares out there, like consumer staples but actually we are not short of cheap ideas right now and that is because with all the many risks out there are a lot of opportunities.
What are the key risks for the companies you invest in?
Hamilton: We see three risks; Brexit, a change of Government and technological disruption. We are not investing in any share where we are assuming it is going to be tough because of Brexit. We make sure companies know what risks they can incur and mitigate. Disruption is the most important risk as we are invested in very ‘Steady Eddie’, cash-generative businesses such as funeral firms and therefore if there is a chance of tech disruption we need to be on top of the fact that companies don’t get disrupted.
The company will tell us if we ask the right questions whether or not they are insulated or not from what’s going on around them.
What differences have you seen in stocks this year?
Hamilton: For us it is really important stocks move differently from each other. For UK mid and small caps, 2016 saw the highest stock correlation in so long, higher than during the financial crisis.
All the bank shares, leisure shares, housebuilders shares moved together and for an active manager no matter what your strategy is, you are going to fail.
2017 has been quite good for the active management space. Shares have done OK but we still see stocks moving differently so it is a good time to capitalise on going through each part of our process.
How many stocks does the fund hold?
Godber: 70, and it is slightly higher than normal because we are just in the process of selling a few stocks.
How often do you trade in the fund?
Godber: In many funds the biggest companies are the biggest holdings, but we are value investors and we are active. Currently we have a 90 per cent active share. Correlation is lower than other funds and that is what people want.
Polar Capital UK Value Opportunity – Top 10 holdings as of 31 July 17
JD Sports Fashion 2.0%
WH Smith 2.0%
Costain Group 2.0%
James Fisher & Sons 1.8%
Renew Holdings 1.8%
Hilton Food Group 1.7%
How do you split the workload?
Godber: We work on a team basis. We have a quite intense activity around reporting season, where it needs a lot of work making sure we cover all the opportunities we can find and at the same time keep an eye on the fund. If you might lose conviction and split a sector, sometimes you need both people to actively discuss that.
Hamilton: The importance of so many fund managers working in a fund as if it were two funds in one can’t be underestimated. If you both have eyes on everything, that is your responsibility. One or two basis points can make a massive difference to a fund’s performance.
Would you be able to manage the fund on your own?
Hamilton: I have for a bit but I have every confidence George could. If he wanted to be out on his own he’d be a brilliant fund manager. He’s brilliant at the process but we feel that having two eyes means we get more out of it. So two plus two makes five; we are just better together. We have a very rigorous process and very replicable system and that’s our focus.
Godber: Working as a pair forces you to be more honest about your mistakes. I had to evolve and my knowledge base had to go up. Now everything is based on a totally equal decision.The stockmarket keeps you in this instantaneous reporting back on how you are doing. In the instance when you are going wrong, you have to be able to deal with a difficult situation.
Hamilton: This is a long game and you have to have your mind in the right place to make rational decisions. And that is the point of being two people. When I was managing the fund on my own, maybe I didn’t have the right work/life balance but equally I know it was just a short period of time. In three months from launch, George was here.
Managing with just one person was possible but unsustainable. For your investors there’s no point in being good for three years – you want to be great for 30 years and we feel this is a partnership which hopefully has a long time ahead of it.