New fund, proven talent

Rob Morgan explains why Polar Capital UK Value Opportunities Fund could make a worthwhile holding - plus an exclusive interview with the fund manager.

By Rob Morgan in Direct Comment, 2nd Feb 2017 09:26am

Rob Morgan

 

New fund launches can provide interesting investment opportunities. In particular, those that offer the chance to back a proven manager with a small and flexible fund. In our opinion Polar Capital UK Value Opportunities Fund could be a prime example.

Fund manager Georgina Hamilton scours all corners of the UK equity market for underappreciated shares using a “value” approach that has delivered strong performance historically, notably when she was co-manager of the CF Miton UK Value Opportunities Fund from March 2013 to June 2016. Her fellow manager at Miton Group, George Godber, will join her in April, as per his contractual agreement

Small and nimble

In this new fund Ms Hamilton starts with a blank canvass and the freedom to cherry pick what she sees as the best opportunities from scratch. Importantly, the small size of the fund at launch should allow her scope to build meaningful positions in less widely researched smaller companies, an area where she has added value in the past. It could also mean she can react quickly to opportunities in the market as they emerge, for example during periods of volatility.

Price is what you pay, value is what you get

Ms Hamilton is keen to point out that the fund adopts a different approach to most other UK funds. Simply put, a value strategy means buying into companies that are worth materially less than the value of their assets. Obviously cheap companies valued at less than the “sum of their parts” can be lucrative but are often hard to find; plus concentrating on these alone might lead to an imbalanced portfolio biased to certain sectors. Therefore, Ms Hamilton also seeks out what she calls “value creators”, companies whose ability to grow through their own efforts is underappreciated by the market.

Shopping for bargains – but with a safety check

Being cheap, however, is not enough. If a company is bought for its asset base Ms Hamilton insists this must be sustainable and not at significant risk of a sudden depreciation; and if value creation over time is the reason for purchase then the returns the company generates must be sufficiently robust so that it can reliably implement its business plans. Finally, all potential fund holdings must pass a “safety check” to ensure they are not overly-reliant on debt, or burdened with other liabilities such as pension scheme funding.

The fund is therefore significantly different to a pure “recovery” fund that buys into distressed businesses in the hope things can be turned around. It may mean missing out on shares in companies that appreciate rapidly as they come back from the brink, but it should mean avoiding costly “value traps”;: companies that appear cheap but are actually in terminal decline with no chance of perceived value being realised.

A differentiated approach

There are relatively few UK funds using this kind of approach, and performance could deviate significantly from many of its peers, as well as the market itself. It could therefore complement more mainstream funds focused on good-quality (but usually more expensive) companies such as the widely held Lindsell Train UK Equity or Liontrust Special Situations. These would likely contain very few of the same holdings.

While a value approach has generally lagged in recent years as investors increasingly pursued strong, defensive companies with ultra-reliable earnings, this trend seems to have broken decisively during 2016. Value-based funds had a strong year, and with the political and economic environment remaining uncertain we believe there is a strong case for the approach going forward. With this clear strategy and a focussed, stock picking approach we believe the fund could be well equipped to outperform.

Learn more and invest in the fund here.

This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in collectives should only be made after reading the Key Investor Information Document, Supplemental Information Document and/or Prospectus. If you are unsure of the suitability of your investment please seek professional advice.
 

From other sections

Morning market bulletin

By Rob Morgan in Companies and Markets

Rob Morgan rounds up the latest market and company news.

Elliott ups stake in BHP Billiton

By Garry White in Companies and Markets

Activist investor Elliott Advisers has increased its stake in BHP Billiton to 5% as i...

Wood Group takeover of Amec avoids probe

By Garry White in Companies and Markets

Wood Group’s £2.2bn buy of Amec Foster Wheeler has escaped a competition probe after ...

More in this section

Are you in danger of making a pension mistake?

By Rob Morgan in Direct Comment

A review of the retirement market by the UK regulator has raised concerns a growing n...

Charles Stanley Direct Cowes Classics Week: Friday's report

By Charles Stanley Direct in Direct Comment

Vintage boats and young winners on the final day of the Charles Stanley Direct Cowes ...

Are worries over an equity correction overdone?

By Jon Cunliffe in Direct Comment

Jon Cunliffe, Charles Stanley's Chief Investment Officer, weighs up the case for equi...

More from this author

Morning market bulletin

Rob Morgan rounds up the latest market and company news.

A route into smaller companies at a discount

Despite strong performance from the asset class UK smaller companies remain out of fa...

Uncovering Asia’s “hidden gems”

Fidelity’s Nitin Bajaj aims to identify tomorrow’s Asian success stories today, often...

Capital at risk. Income derived may fall or rise and you may get back less than invested.