‘We’re now at the top of the cycle’
Investors in the UK stock market over the past decade have been well rewarded for their faith, but as assets touch new highs finding undervalued shares becomes ever harder. Julie Dean made a name for herself doing just that during a tremendous 12-year stint managing Schroders’ (previously Cazenove’s) UK Opportunities fund. It handed investors a 314pc total return between December 2002 and September 2014, outperforming the sector average by 134 percentage points.
The problem with huge returns for over a decade is investors come to expect them. Ms Dean left Schroders to join boutique firm Sanditon Asset Management, launching a near-identical fund in June 2015, with former colleagues Tim Russell and Chris Rice. She now runs just £116m in the TM Sanditon UK Fund – compared with the £4bn she managed at Schroders.
Here she explains how her belief in “business cycle” investing applies to her stock picking and why the search for opportunities in the FTSE 350 is about to get a lot harder.
How would you describe your investment strategy?
It is all based on the business cycle – which is about understanding how value shifts through time and tilting the portfolio to reflect that.
Companies don’t operate in a vacuum; they operate in the real world, which is subject to the economic cycles of recovery, expansion, slowdown and recession. Different types of company will do well at different stages of the cycle, depending on the sensitivity of their business to changes in GDP growth.
It’s not just a growth or value fund – you shift as the sources of return within the market shift.
Returns in the UK stock market are going to be harder to find, Sanditon’s Julie Dean tells Sam Brodbeck
How do you pick stocks?
Our universe is the FTSE 350. We place stocks into seven “style groupings” based on business characteristics, such as “growth defensive”. We use these to understand how firms are likely to perform, in terms of profit and cash flows, as you go through the business cycle.
Which shares have you bought recently?
We bought Man Group, an investment management firm, which looks very cheap for what is a very solid business. It has scope to make acquisitions and has a good price-to-earnings ratio.
On the other side, we’ve sold HSBC because the valuation argument changed. We made 30pc and could not see how we would make another 30pc or even 15pc. This is what good