Fund manager insights
“I would guess we have a bias towards mid-cap companies as opposed to small caps,” says Sedgwick, describing how he runs the fund in relation to his peers. “I am also a huge fan of liquidity – you don’t want to be caught in illiquid instruments. With the exception of Howden, our top 10 holdings are all liquid stocks,” says Sedgwick.
His underlying philosophy is to find businesses that are reasonably priced, highly cash generative and where management is aligned with the interests of shareholders. “We also prefer to see surplus cash being returned to shareholders, instead of being applied to acquisitions that don’t improve shareholder returns,” says Sedgwick. Companies meeting these criteria include AVI, City Lodge, Cashbuild, Italtile, Sun International and Alexander Forbes. “They are all varying hues of the same colour,” he explains.
New additions have included the likes of KAP International. “We added that for the first time a year ago,” he says. “This was post the investment of the Steinhoff assets, and the cleaning up of the portfolio. We have a high degree of confidence in what was being bought and just as importantly, the business acumen in what was being disposed of – we think there are some smart guys making the decisions. The stock was also cheap at just 10 times earnings, so while it’s not the most exciting growth business, it is part of the well-connected Steinhoff family,” says Sedgwick. “KAP has subsequently rerated to 15 times earnings.”