Forget Black Friday! These managers bargain hunt all year round

There are certain times during the year when savvy shoppers dust off their elbow pads and try to make the most of the potential bargains that are out there. Whether it is bank holiday offers, Black Friday discounts or the January sales, deals are there to be found.

However, for many fund managers, the hunt for bargains is on every day. These ‘value’ investors pay close attention to a stock’s valuation and do their utmost to buy in at an attractive or ‘cheap’ price – even if this means buying a company that is unloved by other investors.

Why do they do this? Because they believe that buying into a stock when it is cheap provides investors with a better chance of making money over the long term.
However, value investing is not without its challenges. Anyone who is trying to bag an investment bargain will need to build an understanding of why a potential investment looks cheap. It may be out of favour for good reason, perhaps because the management team have made mistakes or it operates in an industry that faces serious challenges. On the other hand, there are instances where investors may have overlooked positive change that is happening at a company level or within a sector.

Much will therefore depend on an investor’s skill in distinguishing between a bargain and a ‘value trap’: a stock that appears to be cheap but fails to recover. Fortunately, a handful of talented value managers in the UK have shown an ability to do just this.

Here are three bargain hunters to consider:

R&M UK Recovery

Fund manager Hugh Sergeant aims to identify undervalued companies that are yet to deliver on their potential. He buys into businesses at depressed valuations, where he sees the potential for a strong recovery. Over the past 10 years, his process has paid off; the fund has delivered stellar returns of 377%, which compares to 187% by the average fund in the IA’s UK All Companies sector.* This fund is a good option for anyone who is looking for exposure to deep value stocks.

Jupiter UK Special Situations

Ben Whitmore is another true value manager, who focuses on buying strong companies when they are out of favour with other investors. Although value managers have struggled in recent years, his performance has also proved robust. Over the past decade, Elite Rated Jupiter UK Special Situations is up by 227%, which compares to 187% by the average fund in the IA UK All Companies sector.*

Lowland Investment Company

Fund managers James Henderson and Laura Foll are contrarian investors who look for undervalued, out-of-favour stocks. After they invest, they are prepared to bide their time and wait for the market to recognise a stock’s hidden value. They target companies which are able to produce surplus cash after costs in order to maintain their dividends and increase them over time. Over the past 10 years, they have delivered a 352% return for shareholders in the Elite Rated investment trust compared with 194% for the average trust in the IT UK Equity Income sector.*

 

*Source: FE Analytics, total returns in sterling, 20 November 2008 to 20 November 2018

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.