The Analyst

Mark Dampier: buy on weakness and you could go from strength to strength

There are some fund managers, with their complicated investment processes and algorithms, who leave me feeling the need to go into a dark room and beat myself over the head. Thankfully they are few in number and over time I have not had deal with too many managers with indecipherable ideas.

I was once introduced to a team in New York – who, to save their blushes, I won’t name. They were extremely bright people from a wellknown fund group but they lost me within 30 seconds with their mumbo-jumbo.

I’m certainly no genius but I like to think I have a pretty good handle on investing. If I cannot grasp what a fund manager is doing within the first five minutes, experience has taught me they are best avoided. So it was with the New York team: in the end, they completely failed to meet their objectives.

So it is refreshing to meet managers like Chris Burvill of the Henderson Cautious Managed fund. A straight-talking, sensible individual, he tells it like it is and does not complicate issues. He is blessed with common sense and is inclined to tell you about his mistakes or oversights before he discusses his winners.

In a recent meeting with our analysts, he explained that 2015 was not a vintage year for the fund. A relatively high exposure to UK equities dragged on performance as they underperformed other developed markets such as the US and Europe. The fund’s value bias has also acted as a drag on returns. Mr Burvill has a preference for undervalued companies with attractive yields, which have fallen out of favour with investors but where he sees the potential for a turnaround.

This style of investing has not been rewarded over the past year. Instead, many investors have favoured the perceived safety of higherquality growth stocks, thanks to their defensive characteristics and stable earnings.

The items on the manager’s wish list are, therefore, unsurprising: weaker sterling, a stabilisation of commodity prices and continued economic growth (all of which should benefit UK equities), and for value to begin outperforming growth.

Mr Burvill took advantage of the weakness in UK equities to top up on new opportunities. A number of these investments – such as Pearson, Centrica, Rio Tinto and Rolls-Royce – have all contributed positively to performance. Elsewhere, increased exposure to Barclays has had a negative impact on returns, although he is continuing to top up the position because of the weakness. British Land has also hurt recent performance as the share price has fallen on Brexit concerns. However, the manager expects the stock to recover strongly should Britons vote, as he expects, to remain in the EU.

Fixed interest is an important component of the fund; alongside cash, it accounts for almost half the portfolio. One third of the bond element is currently invested in index-linked bonds. While Mr Burvill does not envisage an inflationary spike in the near term, he believes inflation could build slowly over the course of this year as the lower commodity prices of the previous year fall out of the calculation.

The overall bond portfolio is positioned fairly conservatively, although the manager recently topped up exposure to higher-risk high-yield bonds following a period of weakness in the market. In particular, he is focused on bonds issued by financial businesses such as Prudential.

High-yield bonds currently account for around 9 per cent of the bond portfolio, which equates to more than 3 per cent of the fund’s total.

As this is a cautious fund, this element is unlikely to grow any higher.

Overall, 53 per cent is in equities, so good performance from this area is vital. If you are very cautious about shares, you might need to consider another fund. But if you want a common-sense approach to investing, Mr Burvill, with his traditional approach, is probably the man for you.