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Turn round times

I think it is fascinating that we are starting to see the first newspaper articles heralding the death of stockmarket investing.

In a sense, it is understandable, since few investors have made money over the last 10 years. I expect to see more articles in the future with headlines such as “The end of equities” – I say bring them on.

The more I see the more bullish I will become. In my experience, a contrarian strategy of buying into areas that are deeply unfashionable often pays off. As I said earlier, once an investment becomes unwanted, unfashionable and unloved, it is often the time to buy it. Unfortunately, that is difficult to do from a psychological point of view, as we have a natural instinct to invest in popular areas that everyone else is piling into.

How does Mr Mundy translate the contrarian philosophy into practice? Well obviously, he invests globally and will focus on sectors or themes that are out of favour.

However, this differs from many other funds, in that it has a much longer holding period (three to five years or more) compared with the horizon of just a few months that some other managers have.

This is important because often it will take a while for the wider market to recognise the worth of these unfashionable sectors.

The fund also takes a very different approach in terms of stock analysis as it really looks to feed off investors’ boredom. The team first screen the market for shares that fell by more than 50 per cent over a five-year period but excludes those that have fallen a lot in the last two years. This helps it avoid areas that are still in freefall and focus primarily on those that have lost the attention of investors.

Quite often, the share will exhibit no obvious catalyst for an immediate turn-round, so, at the time of purchase, the holding might well appear to be in terminal decline. However, the screening process will also highlight companies that appear well placed to survive over the long term, which, combined with the fund manager’s own in-depth analysis, should help steer the portfolio towards areas that will eventually recover.

The focus today is on companies where the business model is easy to understand and the management has a history of working through a recession. In addition, the Investec team look to avoid indebted companies even if they otherwise appear strong as debt kills you in this type of environment.

Where is the portfolio focused at the moment? The biggest bet is in gold mining, which represent the four biggest holdings in the fund. This includes Newmont, Kinross, Gold Fields and Barrack Gold.

In addition, Mr Mundy has positions in index-linked gilts, held to guard against higher inflation and the possibility of lower economic growth too. The gold position in total is quite large, at around 25 per cent of the portfolio, but there is no point in having an insurance policy if you do not put enough money into it.

Geographic weighting is mainly a product of the individual stockpicking rather than an overarching policy. Nevertheless, the biggest weightings are North America at 45.8 per cent, Japan at 15.7 per cent and the UK at 14.8 per cent.

The fund may be young but it has got off to an extremely good start, having fallen by only 18 per cent since launch against a 35 per cent slide for the average fund in the sector, although, of course, past performance is not a guide to the future.

It is difficult for investors to take a truly long-term approach at the moment. If you can manage it, however, stock markets probably represent good value although they are not necessarily dirt cheap. This is the kind of fund that would suit a patient investor who does not like following the herd.

Mark Dampier is head of research at Hargreaves Lansdown


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