Investing in the FTSE 250 with Neptune UK Mid Cap
Mark Martin, manager of Elite Rated Neptune UK Mid Cap fund, talks to us about how Brexit uncerta...
Neptune UK Mid Cap fund was launched in December 2008, in the midst of the global financial crisis. In the first three months, newly promoted fund manager, Mark Martin, saw his fund fall by 8.85%* before the stock market bottomed on 9 March 2009.
The fund had lost 3%* more than the FTSE 250 benchmark, but 7%* less than the wider market. And, by 19 March 2009 – a mere ten days later – Neptune UK Mid Cap was back in the black. In the intervening decade, the fund has returned just shy of 340%** for its investors, compared with 312% for the FTSE 250 index.
We sat down with Mark to talk about the ups and downs of the last ten years and the challenges that could lie ahead.
“Yes, a couple. Consort Medical, the medical devices company, is an example. It has had consistent revenues and, amongst other things, it manufactures the valve that goes into respiratory inhalers. The product is regulated by the FDA which, in investment terms, is a positive as it’s a barrier to entry. The company has a very strong management team that has consistently reinvested some of the excess profits into research and development. Consort Medical is exceptionally good at what it does and it’s got that particular market pretty much sewn up.
A very good one was Dechra Pharmaceuticals, which just so happens to be another healthcare company. Dechra specialises in products for farm animals and pets. It plays nicely into the long-term theme of protein demand in emerging markets (more farm animals will be required for their meat) and the fact that people are spending more and more on their pets. Dechra has a very strong management team and has been gradually growing the business. The company is no longer a holding in the fund, as it reached the price target we had set, but it was a very successful investment.
The biggest challenge has probably been Brexit and the uncertainty it has caused. I enjoy analysing companies, meeting with management and many other aspects of the job. What I find more difficult is understanding exactly what impact a soft Brexit or a hard Brexit could have on the stocks within the portfolio. Obviously I’ve been asking company management teams about the impact on their businesses for the past two and half years, but no one really knows still.
What reassures me to a large extent is that valuations in the market are currently assuming we will have a pretty hard Brexit and also that a hard Brexit will be significantly negative for the UK economy. In other words the stock market is pricing in a ‘worst-case’ scenario.
I think there is a chance we won’t have a hard Brexit, and I also think there’s a bit of chance that we if do have a hard Brexit, in the long-term it won’t be quite as bad as people expect.
One important lesson is that, the way you make the most money, with least amount of risk, is to identify and invest in good companies, with trustworthy management teams, and then monitor them closely. If there is some kind of wobble in their performance, get to the bottom of it quickly and decide how to move forward.
Another lesson I learned is to be patient both with your entry point and your exit point – when you buy and sell the shares of a company. For example, I first bought into an animal genetics company called Genus in 2011/2012 – around the time when there was a horrible virus going around among pigs and cattle in the US and China. In the short-term it hit Genus profits, because farmers who usually buy their product were focusing very much on this virus and weren’t interested in trying to maximise their yields or anything like that. It is a very good company, but for one year their earnings dipped very significantly. It was fairly obviously a one-off, and it may have lasted for a second year, but it wasn’t going to last for five or ten years.
The final lesson I have learned is that need to be humble and admit to your mistakes – otherwise you won’t learn from them – but you also have to have a degree of confidence in your own abilities and stick with your process, especially when times are tough.
*Source: FE Analytics, total returns in sterling, 15 December 2008 to 9 March 2009, performance figures relate to Neptune UK Mid cap fund, FTSE 250 (ex IT) index and FTSE All Share index.
**Source: FE Analytics, total returns in sterling, 15 December 2008 to 26 November 2018.