What is value investing?
‘Value’ is the name given to investment styles that favour ‘unloved’ companies whose share...
It’s not often the English enter a sporting competition with optimism, but with the Cricket World Cup starting this week there is a genuine belief they may actually win the competition for the first time.
There has been very little confidence in the 50-over side in well-over two decades, but this time England enter the tournament as favourites, having beaten all before them in the past three years.
It is also the first time there has been true competition for places within the final squad of 15, resulting in the omission of a number of top-quality performers who would have walked into many of the England teams of yesteryear.
Of course, picking the best individual players does not always make the best team – you need to find a balance to be prepared for various conditions in a match. With this in mind, we thought it would be fun to apply this to the investment arena by building our own team which we are sure will hit you for six in a good way!
The opening batsmen has the hardest job. They have to face the new ball and the fresh (and often angry) fast bowler. In modern one day cricket they also need to be able to be able to attack and get the team off to a flyer.
Both have a high conviction process, but also look to minimise losses through flexibility and risk management.
The former is one of the punchier strategic bond funds in the sector. It is heavily invested in the debt of financial companies as this is where they believe the best opportunities often lie. It is a low turnover strategy and also has a higher yield than many of its peers.
The latter has a high conviction and disciplined approach which helps it stand out. The manager has a contrarian mindset when building a portfolio of 25-35 names, but also prides himself on having lower than average volatility
If England are to win the World Cup, Joe Root needs to have a great tournament. The number three is normally the glue that holds the innings together – he can play all the shots in the book but also need to play the long-game and get the big score.
Marlborough Multi-Cap Income fund fits nicely in at number three. It invests in much smaller companies than its peers, holding a large number of stocks to ensure it is well diversified. Despite that, it continues to perform while also offering a reasonable yield.
It’s always the big hitters who catch the imagination: they’re the ones you see in the 20-second highlights on the TV news bulletin and in Jos Buttler England have arguably the most innovative big hitter in world cricket. He can win a game in the blink of an eye.
The Baillie Gifford Japanese and T. Rowe Price European Smaller Companies funds fit the bill here. Both are in volatile sectors but have been stellar performers in the medium to long-term – being invested in these funds at the right time may mean a big return.
Limited overs cricket is the realm of the multi-skilled cricketer and in Ben Stokes, England has someone who can bat, take wickets and be dynamic in the field.
The Man GLG UK Income fund has not just one but two extra attributes. While it invests predominantly in UK companies it can also invest in the shares of European companies that derive a substantial part of their revenues from the UK, and in a company’s bond, rather than its equity.
The M&G Optimal Income fund has a go-anywhere mandate. The fund can, and often does, also invest in shares when the manager believes they are more attractive than the company’s bonds.
Any successful team needs a spin option to take pace off the ball and make the batsmen think. The best spinners not only take wickets but offer control in uncertain times.
The JOHCM Global Opportunities fund is a high conviction growth portfolio which has a strong bias towards both large and medium-sized firms. Yet despite holding only 30-40 stocks, the fund has capital preservation at the heart of its investment process.
The fast bowlers’ job is to take wickets at any cost. In Jofra Archer England has a bowler capable of bowling consistently at 90mph and has all the tricks in the book.
While fast bowlers are all about wickets, Schroder Recovery fund is all about value investing. The managers look for out-of- favour companies with resilient long-term business models, which they believe are ‘cheap’ considering their long-term growth prospects.
Goldman Sachs Indian Equity Portfolio is an all-weather fund designed to tap into the growth of an economy which has been widely tipped to be the fastest growing in the next couple of years.
The death bowler has to be able to do everything. They need to be able to be bowl fast and slow deliveries, as well as mixing up their length with short-balls to Yorkers.
The Threadneedle UK Extended Alpha fund offers something genuinely different to its UK equity peers, with the possibility to profit from both rising and falling share prices. Manager Chris Kinder looks for out-of- favour companies with resilient long-term business models, which he believes are ‘cheap’ considering their long-term growth prospects.