Unicorn says that stockmarket prices do not always reflect the economic value of a company. It believes making an investment is about taking a view on the economic value of a business then allowing enough time for the stock price to line up with this. On the other hand, speculation is buying a company while taking a view on which way the market price will go, without reference to factors such as the volume of sales for its products or services, cash flow and the return on capital that is invested into the business.
Unicorn believes the best British companies are not necessarily those that are the biggest, most fashionable, well known or fastest growing. They are more likely to sell simple products and services, and be able to grow their sales and profits while generating substantial cash flow and good returns on invested capital. Unicorn will look for these qualities irrespective of size and sector because these categories only become relevant if they determine how much cash you can produce relative to how much cash you can invest.
Holding the best companies during unpredictable market conditions is regarded by Unicorn as a better approach than buying cheap shares with the aim of selling higher over the short term. The most attractive businesses are those that deliver more cash each year to investors without the need to invest more capital, but these are rate, so Unicorn will focus on companies that need capital but still make good returns. Unicorn will avoid the worst businesses – those that have to grow to keep their competitive edge and reinvest capital at a low rate of return.
Fund managers Peter Webb and Chris Hutchinson will only invest on price if the economic aspect of a business looks good. When assessing companies they will look at the product or service, the competitors and what could go wrong over time.
Unicorn’s long-term strategy may appeal to advisers and investors in funds that are chasing short-term price movements but getting it wrong. However, investors should be prepared to wait for the share prices of companies within the fund to rise in line with the manager’s expectations.