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Vinke in the chain

One of the questions that we often ask fund managers is do they have a distinct style bias towards value or growth when it comes to investing.

Some managers loathe being pigeonholed into either camp, insisting that there is no onesize-fits-all policy. Others, however, have a clear style.

We ask this question as it helps explain their approach and tells us how performance has been achieved over time.

One such manager with a definitive style is Willem Vinke manager of the JOHCM continental select value fund.

If you have not guessed already, the clue is in the name of the fund. Now don’t get me wrong, Vinke is not a classic out-and-out value manager. His focus is on value with quality and this together with careful stock picking has been the recipe for his success.

He is a true believer that companies trading on a discount of more than 25 per cent of their intrinsic value will generate above-average returns over the longer term. On top of this, he looks for companies with good visibility of cash-flow and high return on capital employed. He also looks for special-situation-type companies and undervalued growth businesses, but where the growth is not priced into valuations.

There is a further layer to his investment approach. He believes some of the best possible returns come from companies that have low-capital intensity and high barriers to entry. This means he tends to avoid certain industries such as utilities and resources which are highly capital intensive.

He is not a fan of the financials sector at the moment as he feels banks, in particular, have poor business models, low margins and do not offer a significant return on capital.

This positioning has proved beneficial this year as some European financials have been weak on the back of problems surrounding the US sub-prime mortgage market.

In terms of what he currently favours, the fund has a bias towards consumer goods and services, technology, and telecoms. These companies fit his criteria of high free cash-flow, return on capital employed and attractive valuations with high-growth potential.

This is a 30-40 stock portfolio and individual holdings can go as high as 5 per cent so there can be punchy bets in stocks Vinke holds a high conviction for.

The fund is not constrained by regions or sectors and he is not bound by any committee meetings, ensuring straightforward decision making. There is also a bias towards mid and small caps, with currently 17 per cent and 44 per cent respectively in each area and the remainder in larger companies.

This positioning is a function of where Vinke is finding his best ideas although the fund has the flexibility to be more large-cap orientated, if this is where he identifies stocks that fit his style.

Vinke has stipulated at the outset that there will be a cap of euro1bn collectively across all his mandates in order to align his interests with that of investors.

Currently, he manages euro590m in total although this fund is only euro25m in size.

This should not put off potential investors as the fund’s nimbleness and the eventual capping should allow him to manage money without changing his style or being forced into buying larger companies for liquidity reasons.

As well a1.25 per cent annual charge applied to the retail share class, there is a performance fee of 15 per cent on any outperformance of the FTSEurofirst 300 (ex UK) Index.

This is my only bone of contention because performance fees can be controversial.

However, if Vinke underperforms the benchmark in any calendar year that underperformance must be made up in the following year before a performance fee can be applied.

Vinke has delivered top-decile performance since launch in March 2006. His offshore European Select Values Fund, which he has managed since inception in May 2003, also has an excellent track record.

He has a well thought-out and disciplined approach and I believe there is scope for exceptional returns.

If you haven’t already looked at this fund, I suggest you should do before it closes to new investment.

Meera Patel is senior analyst at Hargreaves Lansdown


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