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A UK equity fund that invests in mid-cap stocks. The approach is primarily bottom-up in nature, managed with a focus upon high quality companies with strong balance sheets. Within its sector, the fund features in our 'Dedicated Mid Cap' category.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 6. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 6 means the fund’s historic volatility is between 15% and 25%.
The fund features in the IA UK All Companies sector but has a specialist mid-cap mandate. The fund’s risk characteristics are in keeping with that of the mid-cap index. Investors should be prepared for bouts of higher volatility than the sector and broader-based UK equity benchmarks, given its specialist mandate. Different share classes could have differing SRRI scores.
The fund is managed by Richard Bullas, co-head of the Martin Currie UK Equities team, based in Leeds. The team operates in a collegiate manner, with the manager working particularly closely with Daniel Green and Marcus Tregoning in the mid and small-cap arena.
The manager seeks to generate outperformance of the benchmark and the peer group over the medium to long term by investing flexibly in mid-cap companies that are undervalued and have attractive risk/reward profiles. As part of the process, he is willing to take a contrarian stance and to be patient if necessary, in order to take advantage of specific opportunities.
The fund typically features 35 - 45 stocks and is not constrained with regard to its positioning versus the index. Instead, position sizes are a function of the manager's conviction and range between 1.5% and 5%. Should a stock weight fall below 1.5%, a full review is undertaken and it is either increased or removed altogether. Stocks that graduate to the FTSE 100 index are sold. In respect of diversification, the manager is highly aware of correlation and with this in mind, he reclassifies the index to account for the common factors that drive businesses across different sectors. Turnover tends to be low.
The process is primarily bottom-up in nature, although macro-economic considerations are taken into account in the context of their impact at the company and industry level. Broadly, the manager seeks companies that have strong balance sheets and positive cash generation. He sees this as important because stronger companies with less debt usually have greater flexibility with regard to their strategic options, such as making acquisitions or increasing capital investment.
The first stage in his stock selection process is to eliminate companies deemed to have high levels of business risk, balance sheet risk and/or management risk. In this way, the manager seeks to avoid companies that may appear to be attractively valued but may also be value traps. For the companies that remain, valuation screening is undertaken, with the manager making use of the firm's proprietary software. This analysis helps him to determine an appropriate price to pay for a company. Further company and industry research is drawn from external sources and comparisons are made with a company's peers and the wider market. As the UK equity team co-operates closely, ideas are shared and actively discussed internally. Company meetings are not a pre-requisite but do occur where greater understanding is sought. Buy candidates tend to be undervalued, based upon the team's analysis. The manager is prepared to take a more contrarian stance when mis-pricings have generated particularly attractive opportunities.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.
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