BEST LARGER FUND
CFP SDL UK Buffettology
1-year return: 20.1% | 3-year return: 72.3%
Warren Buffett is one of the greatest stockpickers of all time, and following his methodology has paid dividends for CFP SDL UK Buffettology. It is our Best Larger UK Growth fund this year, having being named the Best Smaller UK Growth fund in the previous three years. It has been a Money Observer Rated Fund since 2016. Our awards criteria for smaller funds is that they should not be larger than £150 million, and this fund has seen its assets more than double in the past year – from £144 million to £329 million. Two years ago, it had just £42 million of assets.
It has consistently ranked in the top quartile among its peer group. Keith Ashworth-Lord, its manager since inception in 2011, invests in companies with strong balance sheets and the ability to grow over the long term. His style is known as ‘business perspective investing’, which follows the Buffett principle of buying shares in good businesses for less than the business is intrinsically worth, and ideally holding the shares forever. While shares may be sold to lock in profits, Ashworth-Lord invests on a time horizon of at least five to 10 years.
He attributes the fund’s success to getting the investments right after extensive research. When he finds an attractive investment he invests a meaningful amount in it, so as a result the fund is concentrated in relatively few companies (there are currently just 30 holdings in the portfolio) that he feels he knows a lot about. He believes that investment is a business venture, not a gamble, and that it is the companies owned that make money for the investor, rather than the stock market.
BEST SMALLER FUND
1-year return: 13.5% | 3-year return: 47.8%
This is a small fund with just £42 million of assets that has managed to pack a punch in recent years, earning it our Best Smaller UK Growth Fund award. It has outperformed the IA UK equity income sector by 13.5 per cent in the past year and ranks in the top quartile among its peers over one and three years. Manager Mark Slater, chief investment officer of Slater Investments and son of noted investor Jim Slater, has built a reputation as a skilful picker of underpriced growth stocks.
He scours the UK market for companies with above-average growth rates that are likely to continue in the medium term. He then considers the price of that growth. Like his father, he is an advocate of the PEG ratio (price/earnings ratio divided by the earnings growth rate). He favours companies with a strong financial position and good cash flow. He also uses a number of secondary methodologies to identify potential holdings, looking for recovery situations and companies with large amounts of cash on the balance sheet. His portfolios tend to be relatively concentrated, as companies that meet his criteria are rare.
The fund holds companies of all sizes, driven entirely by the opportunity set, and its largest holding is Aim-listed Hutchison China MediTech. It had a loss-making drug development business and a profitable healthcare business, which made the overall numbers not particularly attractive, but looking beyond the headline figures Slater saw a ‘honey’ of a business. Since then, one of its drugs has become the first home-grown Chinese drug to get approval for sale globally.
HIGHLY COMMENDED LARGER FUND
Marlborough UK Multi-Cap Growth
1-year return: 18.3% | 3-year return: 49.7%
The nimbleness of this fund in investing across the size spectrum of UK companies has stood it in good stead in the post- EU referendum period. The £291 million fund is our Highly Commended Larger UK Growth fund this year and has been among the sector’s top performers over one and three years. It has also been a Rated Fund for the past two years. Richard Hallett, the fund’s manager since 2005, builds a portfolio of 50-60 companies with a sustainable competitive advantage that can be used to raise prices and/or take market share from rivals.
A competitive edge could come from the quality of the management; branding, sales and marketing; product innovation; research and development; or intellectual property. Hallett says it is often a combination of these factors. He tends to avoid cyclical businesses and prefers companies that are benefiting from structural change or established long-term trends. The fund had more than 60 per cent of its assets in financials, industrials and technology stocks at the end of March.
HIGHLY COMMENDED SMALLER FUND
Barclays UK Lower Cap
1-year return: 9.1% | 3-year return: 42.5%
For those looking for exposure to UK companies outside the large companies of the FTSE 100 index, Barclays UK Lower Cap is a worthy contender for its consistently solid performance. It has picked up our Highly Commended Smaller UK Growth fund award this year. The fund seeks to achieve long-term capital growth and is slightly unusual among our award winners in that it is run by two external managers – Tim Service at Old Mutual Global Investors and Andy Brough at Schroders.
Each has a segregated mandate to run around half of the fund’s £72 million of assets. It is by blending their different strategies that Barclays aims to deliver healthy returns across complete market cycles. Service has a quality bias, while Brough focuses on identifying mispriced opportunities. ‘Recovery’ stocks doing well for him include Capita, Lamprell and Petrofac.