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A contrarian UK equity fund that is managed according to a value strategy. Philosophically, the manager looks to understand why conventional wisdom may be wrong, in doing so seeking to invest in companies that are priced at a significant discount to their true worth. Within its sector, the fund features in our 'Value-Biased' category.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 7. 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 7 means the fund’s historic volatility is greater than 25%.
The strong style bias employed means that the fund has a highly differentiated outcome, interspersed by periods of powerful/challenging performance. Volatility has been materially higher than that of the index and peers. These characteristics are typical of most pure value approaches. Different share classes could have different SRRI scores.
The fund is managed by Alessandro Dicorrado, Head of Value at Ninety One. He works closely with Steven Woolley, who is Head of Research for the Value team and focuses upon screening, idea generation, monitoring and setting of the research agenda. They have worked together for several years as Mr Woolley was previously a co-manager of this strategy as well as a sister fund which is global in nature. The manager is also assisted by Lorenzo Dicorrado.
The team believes that superior investment returns can be achieved by taking a contrarian stance and, in doing so, they look to take advantage of so-called “emotional arbitrage” and “time arbitrage”. Emotional arbitrage describes their focus on being rational when others might be irrational. In particular, they seek to exploit investors’ disposition to panic in times of uncertainty. Time arbitrage describes their willingness to exercise greater levels of patience compared to most market participants, as well as the ability to tolerate temporary disappointments with a view to achieving greater long-term success.
The fund features between 30 and 50 stocks, with at least 90% drawn from the FTSE 350 index. The small-cap allocation is less than 10% of the portfolio. There is also a cap of 6% on their initial committed capital to each investment, however they can hold more in a stock where they have high conviction in its upside potential.
The main thrust of the team’s work is the identification of stocks that are being shunned or neglected and where they see a clear disconnect between the current market price and their perception of the company’s worth or potential. Ideas emanate from a variety of sources, including proprietary screens, their prior knowledge and broader industry/investment reading. Their screens highlight FTSE 350 companies that have underperformed by 50% from their peak, relative to FTSE All-Share, over the last 7 years. The shortlist of ideas is then spilt into five categories, namely: hidden assets, special situations, fallen angels, cyclical leaders and deep value.
Candidates for further research must demonstrate certain basic characteristics in terms of valuation, balance sheet, industry and corporate governance. The next priority is to assess whether the company operates in an industry they can understand, whether it has decent growth potential and whether its normalised earnings equate to a good return on capital. Selected stocks are then subjected to deeper analysis, with the aim of estimating a reasonable fair value range for the business. Their work has a particular focus upon balance sheets and through-the-cycle performance. They invest where they have confidence in the underlying business, where they expect at least 50% upside to the share price and where the downside (on a long-term view) is limited. The weight assigned to a stock at purchase depends upon their view of the upside/downside risk. In other words, they reserve their larger positions for good businesses that are out of favour, preferring to take smaller positions where the upside potential is attractive but the company is of lesser quality.
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.
At The Adviser Centre, our primary aim is to support financial professionals in their fund selection and suitability work through independently-minded research, borne of decades of industry experience. Our process is framed by the fundamental concepts of “quality”, “value” and “utility”, through which we answer the key questions of why to invest in a fund, how it is likely to behave and how it can be deployed.
The Adviser Centre team members are some of the most experienced in the fund research industry. We can always look forward to robust and constructive discussions and we have great respect for their views and perspectives, which, given the breadth of their fund and market knowledge, come from an extremely well-informed position.
We have known and worked with the team for several years and we value their experience and the insights they provide to our own investment process. The service differentiates itself by its more focused nature and the information on their factsheets is useful in emphasising a fund’s key mandate, exposure and style biases, helping to explain the risk/return journey that our customers can expect.
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