22 June 2017
“Don't invest in countries where they don't wear pullovers in winter”
With the anniversary of the Brexit vote only days away and Theresa May still trying to make minority government work, there was a lot to talk about when two Elite Rated UK equity fund managers came together last week at a press dinner hosted by our own Darius McDermott.
"Events, dear boy, events"
Former British Prime Minister, Harold Macmillan was once asked the most difficult thing about his job. He replied with the now famous "Events, dear boy, events". Thomas Moore, manager of Standard Life Investments UK Equity Income Unconstrained fund, couldn't agree more.
“Macro events can derail fund performance in the short term, as I experienced last year.” he said. “Fund managers are stewards of capital. We have to stick to our knitting and ignore the 'noise' around us.
“The reality is that we are taking views on stocks over 3-5 years, based on insights we receive today. Who is in charge of a country or not makes little difference, and trying to position a fund for short-term events like elections is a waste of time. Fund managers are no more informed than anyone else as to the outcome.
Nigel Thomas, manager of AXA Framlington UK Select Opportunities is of a like mind. “In the short term the market is a voting machine. In the long term it is a weighing machine.”
Addressing a room full of investment journalists, Tom explained how he believes Brexit has already had its main impact, with the falling pound and company investment plans put on hold. A softer Brexit - which may come about now that we have a minority government - would be a more business-friendly Brexit in his view.
Tom also believes that inflation has all but peaked. “The oil price and fall in sterling last year were considerable contributors to rising prices. These numbers are now being annualised and will drop out of the calculation. Oil is lower today than a year ago and the pound has hopefully bottomed. With wages still lagging behind, I don't see inflation becoming a problem.”
Companies, not elections, are key
“Having experienced such a large number of macro events in the past few years - the Scottish referendum, Brexit and Trump's election, to name a few - I believe we are coming back into a period where micro analysis of companies will be more important than macroeconomics and good companies will be rewarded.” continued Tom.
Nigel agreed in no uncertain terms: “No politician can screw up a secular trend.” he said. “Electric cars are the future of the automobile sector. We'll see more and more people use mobiles instead of PCs. Politicians can try, but they can't interrupt this kind of trend for too long.
“I've been investing in the UK stock market since 1979 and my first boss gave me some valuable advice that I still adhere to today: “When you are investing in a company you are basically lending money to the CEO, so if you don't trust the CEO, don't invest.” It's all about the individual company and how it much can manage its own destiny.”
“Mind you, he also said “Don't invest in countries where they don't wear pullovers in winter”, so perhaps it's about the individual bits of advice too!”
Brilliant UK companies
With talk about the UK's medium-sized companies struggling more post-Brexit, Tom made the point that not all seemingly domestic-facing stocks are what they seem. National Express, for example, has focused on diversifying into Spanish coaches and US school buses, which are much more resilient to economic cycles than the UK bus and rail sectors. The market has perceived the company to be vulnerable, but that simply isn't the case.
“Things aren't better or worse today than they were 30 years ago,” said Nigel. “They are just different. But it's the ever-evolving nature of the stock market that makes this job so interesting.
“For example, the UK is one of the leading countries for e-commerce. At 6.1% of GDP we are second only to China, and we are in top spot for average spend per capita. The UK has embraced online and, importantly, it is profitable for our companies.
“These companies will be able to ride out some of the uncertainties too. Rightmove is my largest holding in the fund and a company that is usually seen as a property stock. The company is not interested in housing transactions, though. It is interested in estate agents paying them money to advertise.
“Advanced Medical Solutions is another hidden gem. It's a small UK company based in Northwich, that specialises in adhesive medical products. We have some brilliant companies in the UK that you never hear about but will continue to prosper even in a tough economic environment.”
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Nigel's and Thomas's views are their own and do not constitute financial advice.
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