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Meet the manager: ‘Given what’s happening with the politics, I’m pleased with the performance’

Crux fund manager Richard Penny discusses an undervalued UK market, his best stockpicks of the year, and how working at a boutique differs from a multi-national business

Running a UK fund in the current economic and political climate is no easy task. But Crux UK Special Situations fund manager Richard Penny says investors need to remember that the UK market and UK economy are not the same thing.

Although the past few months have been up and down when it comes to the stockmarket, Penny feels he thrives in markets such as these.

He says the best points of his career were in 1998, 2003 and 2008, when markets dipped or crashed.

Penny joined Crux in June 2018 and just a few months later, launched the £22.3m UK Special Situations fund.

Previously the manager of the Legal & General UK Alpha Trust and L&G UK Special Situations Trust funds, he comes from a small- and mid-cap background.

While his current fund has just a few months’ track record, it is clear from Penny’s history that he has outperformed the sector and has a long-term performance record.

The graph (below) shows his performance relative to the Investment Association UK All Companies sector average over the past 10 years, excluding some months of gardening leave between leaving L&G and joining Crux.

Penny believes the UK is currently “cheap” compared with other international markets, and that valuations are low.

He says: “Specifically, we are a stock-picking fund with 45 names; we don’t have to buy everything, irrespective of how we feel about the UK stockmarket. We just have to find something good.

“The reality is that we don’t quite know what’s going to happen in the short term. Given what’s happening with the politics, I’m pleased [with the performance].”

Penny adds: “Mid- to long-term, you have to believe something’s terrible for it not to be a reasonable bet. We don’t want to predict the next three years; we want to look at longer track records, particularly in a stock-picking fund. It’s not always good, but six or seven out of 10 years, we have done all right.”

While the fund uses a bottom-up stock-picking strategy, it has a sector cap. Penny explains: “I’ve always tended to be invested in companies such as services, or companies that make things, but in particular, within a growth strategy we’ve got, I like small- and mid-sized businesses that have got the products and return on capital. We do limit exposure to one sector to 20 per cent, so it’s never going to be a technology or healthcare fund.”

He adds: “We look for growth at a reasonable price. Sometimes growth and value are seen as opposites. But I am going to buy where there is both.

“If I can pick up something before it’s widely appreciated by lots of people in inefficient parts of the market, that can be really good for a number of years.”

When it comes to specific stocks, Penny says there have been some that stand out. He bought retailer JD Sports in December after online shopping site Asos had a profit warning: “[The stock] went up, and then we sold it because, for me, it’s about buying good businesses at the right prices and having the upside in investments.”

He says sometimes it is all about buying businesses where there is “hidden” growth. One example he points to is Inchcape, the car forecourt dealer. The retail element of the company does not make much money and could be considered a “recovery” stock. But he points to the global distribution business, containing original equipment manufacturers that produce parts, that makes around 90 per cent of profits in the overall company.

When it comes to researching companies to invest in, Penny has a team of five, including fund analysts, who all have speciality sectors in which they operate.

He says that it is not that different to working at L&G, except the scale of the wider company, while access is also similar: “It’s a question of being flexible, so we are in a good position to know what we want to do and move quickly when there are shares available.”

One area of investing he stays clear of is unquoted stocks: “It’s scary when you own unquoted companies. It’s a completely different skillset.”


Royal London Asset Management

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