The fund manager outlines her plans for what is likely be a tough year ahead.
Laura Foll has been at Janus Henderson since she joined its graduate programme in 2009 straight from university. Like many of her generation, she joined the workforce while the full ramifications of the financial crisis were still playing out and the country was deep in recession. “Thankfully, the company didn’t cancel its graduate recruitment scheme in the middle of the crisis. It was either this or go back home and live with my parents,” she says.
Initially she was an analyst focusing on the pharmaceuticals sector, but in 2010 she started to work more closely with James Henderson. She officially joined the Lowland investment team five years ago as deputy manager. In 2016 she became co-manager – formal recognition from the board that the duo were running things together. She says: “I was in the right place at the right time. James didn’t have anyone helping him before I joined the trust and he runs four funds – that’s a lot of work.”
Foll clearly remembers the first company that made it into the portfolio on her recommendation. AstraZeneca was widely out of favour because many investors feared it would cut its dividend, but she liked its then new chief executive, who was refocusing the business on research and development. Shares soared as the firm became the subject of a takeover bid from rival Pfizer. Foll pocketed her profits and later bought back into the business when the bid didn’t go through.
However, she says, working on the fund is “genuinely collegiate”. She adds: “Neither of us would put a new position into the fund without discussing it, and we will rarely veto each other.”
Having a co-manager who has been in the industry for decades has provided her with a great learning opportunity – most notably during the recent stockmarket sell-off in October, when Foll was tempted to start snapping up shares as valuations plunged. “James was cautious. It is really useful to have someone beside you who has seen the cycles and come out the other side,” she says.
Foll’s decade-long career has spanned the longest bull run on record. She has only just seen her first-ever interest rate rise and admits that recent volatility has been new territory for her.
However, joining a trust that has been managed by the same man for almost 30 years has its downsides too. Foll has had to be patient in getting people to recognise her as co-manager, making an effort to get out to speak to companies and investors. She says: “Little by little, people start to associate you with the trust. James has been here since 1990, so you have to be realistic about the fact that he will be the name associated with Lowland for a long time to come.”
Despite her background as a pharmaceuticals sector analyst, Foll sees herself as a generalist investor. She prefers not to specialise in one particular area, fearful that she would find the restriction boring. She says: “I find it really interesting knowing a little bit about all types of different businesses. You learn about all sorts of weird and wonderful things.” Indeed, the first company she ever looked at was involved in salmon farming.
Some investors argue that a specialist has an edge over a generalist, who may miss an opportunity because they don’t fully understand the industry they are investing in or may think there is an opportunity where there isn’t one. However, Foll works with independent analysts and relies on them to fill in gaps. She says: “You quickly learn which analysts you can trust. You want those who tell you everything, including the risks.”
Company bosses have a particularly important role to play at the small- and mid-cap firms Lowland invests in, as they are the driving forces behind these business. That means regular meetings and a close working relationship with any firm the trust invests in. Foll says: “We have a low turnover – we typically hold stocks for five years – so when we meet management, we are conscious that we are going to have a long-term partnership and we want to nurture that.”
That also means the trust doesn’t give up on stocks after a profit warning, when many investors might panic and sell. Instead, for this trust, which Foll describes as “mildly contrarian”, that is often a signal to buy more shares.
That’s not always the case, of course. An investment in suit retailer Moss Bros has disappointed of late, as alarm bells started to ring over structural headwinds the business is facing as the high street continues to lose market share to online retailers. “The theory [behind the investment] was that people will continue to buy suits in a store because they want to get measured for them, but footfall is down,” she says.
Sectors with structural problems are ones Foll will typically avoid, which explains why the trust has no stocks in the tobacco industry. “With these companies, sometimes the most important questions are the obvious ones: are people smoking less? Yes, they are.”
She likes companies with high barriers to entry from competition, and those that are growing and increasing their dividends. “A company that is static is actually regressing, in my opinion,” she says. “Valuation is important, but so is avoiding value traps.”
She likes IPOs but tends to only take part in those “at the smaller end that aren’t the hottest”. K3 capital is a current favourite investment – it floated in 2017. K3 is a corporate broker for smaller companies such as local pubs and engineering groups. When they want to sell their businesses, K3 finds a buyer and takes a commission. Its shares floated at £1 and reached a peak of £4.08 earlier this year. The October stockmarket sell-off dragged them lower, but today the investment is still up significantly, with shares at £2.79. Foll is not put off by that; she’s actually looking to add to her holding.
She has also been topping up a holding in Hill & Smith, whose shares plummeted by 40% after a recent earnings downgrade. The business makes road crash-barriers and zinc-dips street lamps to stop them rusting. She says: “The market reaction has been unfair. It’s a good business, and regardless of Brexit or a potential Labour government, there will still be spending on roads.”
Having a well-diversified portfolio allows the pair to make contrarian bets at difficult times. There are 120 holdings in the portfolio. Positions start small, at around 0.3%, and grow as the duo becomes more confident. This diversification will, she hopes, help them through the tough times almost certain to come.
“Brexit takes up most of my thinking time, as it is a major risk to many UK stocks and a really difficult backdrop against which to make decisions,” says Foll. It’s a hard time to be a UK investor, particularly for a fund focused on mid- and small-cap companies that has a contrarian or value approach. Lowland has these attributes, so it is not surprising that it has lagged its sector of late. The trust is down 8.2% over the past year, while the average UK equity income trust is down 6.1%. Amid the recent stockmarket tumult, the fund is down 10.3% over three months, compared with a sector average loss of 9.2%.
Double up on diversity
“All we can do is make sure we have a really diverse list of stocks that are not correlated with each other,” Foll says. That means considering not just sectors and industries, but how businesses will be affected by news about other sectors. Real estate company Land Securities, for example, will be affected by the outlook for the retail sector, because retailers are tenants of many of its buildings.
Nevertheless, proponents of investing in the UK would say that uncertainty and negative sentiment creates fantastic opportunities for bottom-up stockpickers. Foll thinks many UK stocks look great value at the moment. However, as with interest rate rises and stock market sell-offs, the current uncertainty is new territory for her. She says: “In the long run, hopefully none of this will matter. The way we are dealing with it is simple: we go slowly.”
Laura Foll: in six
1 Best investment: K3 capital. Its share price since it floated in early 2017 has risen from £1 to £2.80, although it was at about £4 before the sell-off in October.
2 Worst investment and lesson learned: Conviviality. It performed well, but its business changed after a number of acquisitions were made. It didn’t have good financial controls and went bust. We had taken some profits, but we should have sold it all. Maybe we got greedy.
3 In my spare time: I don’t have much at the moment, as I have a teething 10-month-old daughter, Camilla. So any spare time is spent sleeping – last night I got about five hours.
4 If I could change one thing about the industry: I would stop there being so much technical speak and so many acronyms. It’s unnecessary and it puts people off.
5 My alternative career would have been: Until my mid-teens I wanted to be a doctor. I’m glad I didn’t take that route now. I have doctor friends, and while it’s very fulfilling, the work/life balance seems quite horrendous.
6 Do you have skin in the game? Yes. I invest through my Sipp and Isa.