Jayesh Manek tells Iain Murray about the change of strategy that thrust him back into the limelight
Proof that the gods of investment have a sense of humour is to be found in the top slot of the 357-strong UK All Companies Funds league table. It is occupied by a self-taught fund manager operating on his own from an inconspicuous office in Sudbury Hill, north London.
However, the last laugh is had by the fund manager himself, Jayesh Manek, whose story is improbable but true. Born in Uganda in 1956, he qualified as a pharmacist at Brighton College and opened a chemist’s shop in Ruislip. But that was merely a business; his real enthusiasm was investing.
In 1994, he decided to put his skills to the test and entered the Sunday Times fantasy stock-picking contest. He turned a notional £10 million into £502 million and scooped the top prize. The following year he repeated the trick, though not quite so spectacularly, by turning £10 million in £58 million.
Not surprisingly, his performance caught the eye of the City. In particular, it engaged the attention of financier Sir John Templeton who advanced Manek £10 million of real money and challenged him to make real profits, which he duly did within months to the tune of £4.5 million.
By now, the Manek legend was established and he was urged to set up his own fund. In 1997, the Manek Growth Fund, a unit trust for small investors, was established. Some 9,000 unit-holders hitched their star to his wagon, putting in a total of £64 million. Surely it was too much to expect him to repeat the magic yet again. But he did. By early 2000 the fund had grown by 160 per cent.
Boosted by the rising value of its investments and by the inflow of new money from eager investors, it swelled in value to £300 million. By March 2000 the £10,000 invested in 1998 was worth £32,000. Surely it was all too good to be true? It was. Hit by blows from all sides – a bear market, the bursting of the dotcom bubble, the post-9/11 slump – Manek Growth Fund went into free fall. It slumped to the foot of the league table where it bumped along for five years. Funds under management fell to £50 million and in 2004 the fund hit rock bottom when it was the only UK managed unit trust with a negative return.
The final insult came when Bestinvest announced that Manek Growth Fund was making its fifth consecutive appearance in its analysis of ‘dog funds’.
Looking back, Manek says he caught the tail end of a 20-year bull market. ‘My strategy is very much bottom-up. I try to combine growth, value and momentum, with the most emphasis on growth. That doesn’t mean that value stocks don’t qualify as long as there is growth potential in that particular stock at that particular point in time.
‘In the 1980s and 1990s there was plenty of choice as far as true growth companies were concerned. Because of the stock selection process the concentration was more towards technology-type companies. But then the tech bubble burst. In my experience, I had not seen a bear market that lasted more than six to eight months. A lot of these companies were growing very fast, valuations were very high. After selling some of these companies I still retained quite a lot, assuming they would go through the normal six to eight month cycle and then recover.
‘Initially, it went according to my expectations. There was a recovery – but then the big sell-off started and there was no hiding place.’
At that point, he faced a stark choice: either give up or, in the words of the song, pick himself up, dust himself down and start all over gain. He chose the latter.
‘I went through each and every trade, recorded them on the charts – when they were bought, when they were sold, the complete price pattern as to why they were not sold earlier or why they were sold at the time they were sold, looking at the chart patterns, the volume patterns. We went through some 800 transactions.
‘Based on those results I did a complete review of the strategy. So we introduced three or four parameters where we would take profits or sell a stock. It could be a profits warning.
It could be that something better was available. It could be that performance was not as good as we had expected. Secondly, because of the type of stocks we were selecting, there would be periods where the fund would do extremely well and there would be periods when it would underperform. So we introduced risk management in terms of the allocation to each stock. Previously, if I was too confident about a stock the holding could go up to 6, 7 or 8 per cent. The new allocation was between 2 and 3 per cent maximum.
That ensured that if there was a profits warning we would not be drastically affected by it.’
As a bottom-up stock picker Manek had not taken much interest in the macro picture.
That, too, changed. ‘I started monitoring the main market and also the sectors which I was in favour of at the time.’
He also broadened his interests to include the US market, taking holdings in companies such as Amazon, Apple and eBay. ‘That allowed me to apply some of the things that were working in the US market to the UK market and that improved the selection process for UK stocks.’
His study of macro-economics led him to conclude that the UK and US economies were being driven by a consumer-spending boom fuelled by withdrawing equity from houses.
‘It had to end at some stage. Also, when mortgages are offered at a discount to the base rate there is obviously something wrong. It can’t continue. It’s cheap money and wherever there is cheap money it ends up creating bubbles somewhere.’
Wisely, Manek avoided everything in the financial, property and retail sectors and concentrated on selected cyclical companies, including specialist engineering companies, particularly those providing services to the oil industry, technology companies and some metal companies.
To his immense satisfaction, the new strategy came good. ‘The first complete year was 2005 when the fund was first or second in the sector. In 2006, it didn’t do particularly well, it underperformed the index. In 2007, it again ended up second or third in the sector. In the current year to date, it is number one. We are up 7.9 per cent and the average is minus 15.’
He is pleased to have confounded his critics, but not at all boastful. ‘The criticism did hurt but you try to learn from the experience. When I was planning the new strategy I thought, if I get one good year, that is not good enough; it has to work over at least three to five years. And having gone through three-and-a-half years, one feels more and more confident. But nothing is foolproof – I am constantly adding components and developing the strategy to make it more focused and less risky, to make sure that investors don’t lose their money.’
When asked to pick a favourite share, he is hard-pressed to choose. ‘It is difficult to pick one stock because even if it is a fantastic company we still start off with just 2 to 3 per cent. But if I were to pick one it would be in the oil sector because I think it will continue to do well. Many of these oil companies are valued on an assumption of around $70 a barrel and the price has been between $125 and $145, so there is still a lot of potential in these oil exploration companies.
‘The stock I feel will do exceptionally well is Aveva, which is a provider of specialist engineering software to the plant and marine industry, including oil and gas, from putting up the equipment to managing the process. It is a very interesting company and we have had it in the portfolio for some time.’