WS Lightman European

This is a genuine European value fund - a rare breed in this day and age, as there are not many value funds left. WS Lightman European is all about being contrarian and going against the herd. It relies on a process built around the years of academic research which show that value has historically outperformed in the long run.

Previously LF Lightman European.

Our opinion

WS Lightman European is a very stylistic fund with a heavy value bias. Performance has been excellent so far. However, it has been far from a smooth journey, and we expect this to continue. This is the sort of fund which is likely to either be at the top or the bottom of the performance charts, in any one year, depending on whether or not its style is in or out of favour. Manager Rob Burnett is highly experienced, and we think he will thrive at a small independent boutique like Lightman. For investors who can stomach the potential volatility, this could be a great option, especially if they are looking to balance out their style exposure elsewhere within their portfolio.

Company description

Lightman is a relatively new asset management company founded in 2019 and dedicated to European equities. Based in London, the investment approach is rooted in empirical research which favours the value style of investing. The company manages this strategy as both a UK domiciled OEIC and a Luxembourg SICAV.

Fund manager

Rob Burnett spent most of his career at Neptune Asset Management where he was most well-known for running the Neptune European Opportunities fund between 2005 and 2018 (the fund is now called Liontrust European Opportunities, following Liontrust’s takeover of Neptune). Rob also managed a number of other European mandates whilst at Neptune and the Japan Opportunities fund prior to that. He was also head of analysis for the global financials sector. In 2018 Rob left Neptune to found Lightman. Rob studied Politics, Philosophy and Economics at Oxford.

Rob Burnett Fund manager

Investment process

WS Lightman European fund is quite concentrated with between 40 and 50 holdings, but the team aims to construct a well-diversified portfolio. The fund’s philosophy is rooted in the empirical research which has shown that the value style of investing outperforms over the long term.

The focus is on the investment characteristics which have worked with the greatest consistency over the longest time frames. This has led the team to favour high cash flow yields over low cash flow yields; low price to book and price to earnings over high multiples; and positive operational momentum – because an operational improvement in an already cheap stock can lead to an increase in earnings and a multiple expansion leading to very strong share price performance.

Rob is supported by two investment analysts and their process begins with a screen of companies for liquidity and low valuations which leaves them with around 600 stocks. The team then screens for companies with high free cash flow yields and low valuations.

The team also screens for companies with low incremental investment rates leading it to typically invest in more mature industries. These stocks are then analysed for balance sheet strength, operational momentum and environmental, social and governance issues. The team aims to find businesses with an imminent improvement in revenue, margins, or free cash flow. Strong balance sheets are now a part of the process. In the past, finding value meant compromising on balance sheets but that is not necessary today.

ESG

As a value fund, WS Lightman European holds many companies with weak ESG profiles. This not to say that ESG is not important though, far from it. The team views ESG ratings in a similar way to earnings: a higher ESG rating can drive a re-rating in the company’s shares. Their process is therefore focused on those companies which can improve their ESG ratings the most, rather than those which are already high. The rate of change is what the team considers to be the most important factor.

Risk

Given the fund is very stylistic, the team tries to invest in at least 6 of the 11 MSCI Europe ex-UK sectors to aide diversification. Typical position sizes are 2-4%, with a soft limit on individual positions of 5%. Performance is likely to be very lumpy, depending on whether the fund’s style is in or out of favour.

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