Failed Reinvention: Neil Woodford
Over the years, I have interviewed hundreds of fund managers. Some have been fussy, combative, or monosyllabic; others eloquent and charming.
However, regardless of your mood and kindness (or lack thereof), there is no overwhelming personal characteristic that defines a good manager (or, for that matter, a bad one). Inquisitive? Yes. A good knowledge of financial figures? Yes. Smart? Yeah.
Some, like Richard Staveley (Rockwood Strategic investment trust), speak well and deliver investment returns in spades. His enthusiasm for investing in smaller UK companies is boundless; A recent conversation I had with him still rings in my ears.
Others, like Trust AVI Global’s Joe Bauernfreund, are more comfortable letting the performance numbers speak for themselves. It has generated a 69 percent return for investors over the past five years.
Of course, investing experience helps too. Staveley and Bauernfreund have been involved in investment management for more than a quarter of a century.
But this is of no use if, as we saw with disgraced fund manager Neil Woodford, a manager suddenly tries to reinvent himself.
In Woodford’s case, he thought his ability to generate returns by buying underappreciated British shares would translate into identifying unlisted start-ups that would achieve greatness. It wasn’t like that. Investing in unlisted stocks is a different investment game.
Both Staveley and Bauernfreund (a shrewd buyer of undervalued businesses) have held firm, and investors have prospered as a result.
When researching a fund, I like to focus on the thoroughness, soundness and integrity of the investment process behind the designated manager. For example, I like what administrators Willis Towers Watson are doing at the £4.9bn Alliance Witan investment trust, carving out portions of the fund’s assets to be managed by external investment experts around the world.
The trust is a stable Eddie – an ideal candidate, I would say, for a central share in a tax-free Individual Savings Account (Isa) or self-invested personal pension (Sipp).
A continuous 57-year track record of dividend growth is also wildly impressive. I also like the investment rigor behind JPMorgan European Growth & Income, an investment trust where the portfolio is built through a combination of quantitative research (analysis of financial numbers) and qualitative analysis by its investment managers.
The result is an excellent investment fund (see last week’s “Fund Focus” column on Wealth).
Although Scottish Oriental Smaller Companies Trust is more of a peripheral rather than core investment, it is also backed by a rigorous investment process.
Earlier this year, I spoke to its co-fund manager, Sree Agarwal, and was impressed by the meticulous work being done to make the trust’s portfolio fit for purpose. I caught up with him again last week when Agarwal was in the UK to do some marketing and attend the trust’s annual general meeting in Edinburgh.
Based in Singapore, Agarwal is part of an 18-person team at FSSA Investment Managers that has contributions to the trust’s portfolio: FSSA is a specialist in Asia and emerging stock markets and is part of global asset manager First Sentier Investors.
The team’s mission is to explore Asia’s major stock markets for companies that have exciting new business ideas, are led by quality management and operate in sectors where growth potential abounds.
Macro considerations don’t enter the equation: they focus on finding businesses that thrive regardless of the economic context. Its universe comprises Asian companies with market capitalizations of less than $5bn (£3.84bn).
Although it’s huge, they narrow it down to 300 companies that they continually monitor. Of them, 50 currently form the trust’s portfolio.
Before acquiring a stake in a company, FSSA meets with the company’s directors to determine whether your interests as a potential minority shareholder will be fully aligned with those of management. They also conduct due diligence on how workers, customers and suppliers are treated.
If all of these controls work, and the business is top-notch and not burdened by debt, then an investment is made.
The Chinese stock DPC Dash is indicative of the company that managers like. It owns the exclusive Domino’s Pizza franchise in China and has already opened 1,000 stores. But it is far behind the curve compared to companies like KFC, which has 12,000 stores.
As DPC Dash opens more outlets, Agarwal says its revenue will skyrocket. The stock is now the trust’s second-largest holding.
Agarwal says a fund like Scottish Oriental will always be susceptible to disruptions in the stock markets it exploits for investments, as a result of occasional financial disruptions.
However, in the long run, it pays off, as evidenced by 58 percent over the past five years.
Like Alliance Witan, AVI Global, JPMorgan European Growth & Income and Rockwood Strategic, Scottish Oriental is worth considering as part of your investment portfolio.
Nottingham’s rebrand is so off
Thank you for all your comments regarding Nottingham Building Society’s decision to rebrand, which will eventually mean the eradication of its Robin Hood logo.
Judging by those who have contacted me, clients are not happy with the makeover. They accuse the society of being woke and wasting money (the society did not tell me how much the rebrand will cost, although it did emphasize that it used a good value agency).
Lost in translation: People are not impressed with the use of a wavy ‘N’ on new signage
People are also unimpressed with the use of a wavy ‘N’ on the new signage for Nottingham, which will now be called Nottingham Building Society.
The squiggle, I’m told, represents a point of difference, denoting society’s commitment to offering mortgages to customers who would otherwise have difficulty obtaining them. I have yet to understand that explanation.
Some customers say that if Robin Hood had to go, surely an acorn or oak would have been a better alternative, in recognition of the greater oak found in Sherwood Forest. For the record, Nottingham made pre-tax profits of £0.7m in the first half of this year (2023: £11.7m).
The collapse in profits was mainly due to the provision of £10.7 million to compensate clients caught up in the Philips Trust Corporation scandal which affected several trusts other than Nottingham (Leeds, Newcastle and Saffron).
Also, for the record, Nottingham Building Society boss Sue Hayes received remuneration last year of £478,000, including a £62,000 bonus. No wonder Robin Hood flopped.
Premium financing? Ban it now
Recent regulatory efforts to make the auto and home insurance markets fit for purpose have failed spectacularly.
So forgive me for being so skeptical about the regulator’s latest investigation, focusing this time on the ‘premium financing’ scam that many customers who pay for cover through monthly installments are forced to pay.
Nothing more than banning expensive premium financing will do, but I bet the regulator (the Financial Conduct Authority) will get away with it. As for the task force created by the Government to specifically examine the rising cost of auto coverage, it has good intentions. But it’s the equivalent of closing the gate after the horse has bolted.
For the past two and three-quarter years, insurers have gotten away with the equivalent of blue murder by imposing unjustified premium increases on many policyholders, especially the elderly.
Unfortunately, such financial abuses will fall outside the task force’s purview. If you are a victim of premium financing, email: jeff.prestridge@mailonsunday.co.uk.
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