Funds that beat their peers in 2022
2022 has been a difficult year for most asset classes. War in Europe, persistently high inflation...
Waverton European Capital Growth
This is a high conviction fund focused on finding reforming large and medium-sized European businesses, which can create wealth and returns for shareholders.
Our opinion
Waverton European Capital Growth fund has a clear and common-sense strategy. We like the longevity and experience of the two fund managers, who have been working on the strategy since 2001. They have proven that their process is repeatable and performance has been consistently excellent over many years.
Company description
Established in 1986 as J O Hambro Investment Management, the company was renamed Waverton Investment Management in 2014 and 37.5% of the company is owned by its employees. The company now manages £5.6 billion on behalf of institutions, private clients and charities. Waverton funds is a specialist unit within Waverton Investment Management and describes itself as a big boutique.
Small teams are given the freedom to implement their own strategies whilst still being supported by the infrastructure of the wider group. Managers interests are aligned with their investors as they are invested in their own strategies. Funds are deliberately capacity-constrained to prevent them from becoming too large.
Fund manager
Chris Garsten and Charles Glasse are the two lead managers of Waverton European Capital Growth fund and have worked together since 2001. Prior to that Chris worked as a member of the Credit Suisse Europe ex-UK asset management team. He was the lead manager of an award winning Netherlands Country fund. Charles worked at M&G for 13 years where he headed the European Continental team. For over a decade he ran the company's flagship M&G European Dividend fund.
Consistent Alpha comes from capturing sustainable tailwinds early. Just as gardeners focus on soil quality, we focus on unearthing the best management and product opportunities.
Chris GarstenFund manager
Investment process
The managers believe that only a third of European companies are run for shareholders. They avoid weaker businesses with poor corporate governance and instead focus on finding companies with five key attributes; aligned interests, earnings visibility, pricing power, cash generation and return on capital.
Stocks in Waverton European Capital Growth fund do not immediately have to have all these attributes. Indeed, many of their best ideas come from companies which are in the early stages of reform. Often a new management team will be a part of this. It is these business which have the greatest potential for wealth creation. They have a 'one-in, one-out' philosophy which ensures only their best ideas are represented in the portfolio.
The fund is multi-cap although it is unlikely to invest in companies with a market capitalisation below €1 billion. While the investment process focuses primarily on individual company fundamentals, the managers do not ignore the wider macroeconomic environment, and will position the portfolio accordingly.
ESG
ESG - Integrated
The managers of this fund believe there is a correlation between ESG leadership and good company performance. As such, they integrate ESG analysis into their investment process by identifying the risks it offers to a business. However, this analysis is not used to exclude companies, with the managers looking for a balance between the ESG risks of a business, and the valuation at which the business is priced. They use data from two third-party sources and incorporate this alongside their fundamental analysis. This flags any ESG controversies on a scale of 1-5. Anything above a 3 will result in a full review by the managers and/or analysts before progressing.
They will incorporate this score into a dedicated section of the investment note, allowing managers and other in-house stakeholders to assess the ESG risk as prominently as all other factors related to a stock. If the managers are comfortable that these risks are not material, or that the valuation already reflects their impact, then can still proceed with investment.
Risk
Waverton European Capital Growth fund is highly concentrated with just 30-40 holdings. However, the managers generally avoid taking big bets on any one company, country or sector. The fund has consistently been less volatile than its peers. Waverton uses six risk measures to formally control and monitor risk.
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