I am going to avoid writing in detail about the wider markets. Events move so quickly that as soon a I write something, they have moved on. So, for those still venturing into the markets, I thought I would highlight a fund manager with an excellent pedigree looking to exploit a range of long-term structural growth opportunities. The manager is Tim Steer and the fund is Artemis UK growth.
If you turn the clock back to the early part of this century, one of the major themes for financial markets, apart from the bursting of the dotcom bubble, was major accounting scandals and the collapse of companies such as Enron and WorldCom.
What is the relevance of bringing up this stockmarket history? Quite simply that one of Steer’s unique selling points is his passion for dissecting company accounts, looking for numbers that do not add up, essentially avoiding Enrons. Indeed, in his hedge fund (sadly not available to retail investors), he shorts companies where he feels the accounts do not tally.
One of his most famous triumphs was Connaught, the property management and environmental services group that went into administration in September 2010. He found the balance sheet recognised profits from activity that had not yet been fully carried out or paid for. As Connaught’s financial position deteriorated in the wake of govern-ment spending cuts, there was insufficient cashflow to pay suppliers. The company was eventually put into administration, wiping out shareholders.
Needless to say, this was a very profitable trade for Steer and although shorting is a risky strategy, he only needs a couple of successful shorts each year to add a tremendous amount of value for his investors.
In this retail fund, Steer can go short with up to 10 per cent of the portfolio and it can really give him an extra source of returns over his rivals in the sector. Plus, for his long positions, he actively avoids what he calls “the high cliff divers of Acapulco” – companies that take risks, hoping things will turn out all right.
Although a UK fund, Steer fervently believes this is a global investment with only 29 per cent of the portfolio by revenue exposed to the UK. He is seeing lots of opportunities in the UK that offer inexpensive exposure to the rapid growth of emerging markets. He also believes UK companies generally have the added benefit of good corporate governance and accounting standards, although there are exceptions.
What sort of companies is Steer looking at? Examples include Devro, a company making sausage skins, and Aggreko, a firm with significant emerging market exposure providing temporary power generators. The top holding, Weir Group, is the world’s biggest manufacturer of pumps for fraccing – essentially extracting oil and gas from rock formations. Steer believes many of his holdings are well protected from any global slowdown as they dominate specific niche areas offering strong growth.
To accompany his forensic accounting approach, Steer calls upon his quantitative system built by Stephen Yiu, the assistant fund manager on the fund. This looks at a variety of company factors, including price-to-earnings multiple, earnings growth, share price momentum and technical analysis. Each stock is scored out of 100 and the system is used to search for new ideas as well as sense check existing ones.
At the end of July, the UK market looked good value based on our analysis. The recent significant falls have made stocks cheaper still to the point that earnings and dividends would have to fall a good deal to justify it. For investors prepared to venture into the markets and hunt for bargains rather than batten down the hatches, I believe this fund represents inter-esting way to exploit the varied opportunities in the UK market.
Ben Yearsley is investment manager at Hargreaves Lansdown