I’ll come good ...what fund boss told MoS
UNDOUBTEDLY, this has been a difficult period for investors in Equity Income – I understand their disappointment and frustration.
Ultimately, the criticism I receive is driven by performance and so let me explain what I am doing with your money and why.
For me, everything in my investment world begins and ends with valuation. Although I have experienced some company-specific disappointments, the fund has underperformed because my valuation strategy has been completely out of step with a momentum-driven market.
This is where market investors ignore valuation and buy stocks that have risen in price and sell those that have fallen.
When I look at businesses, I judge their success or failure based on what they can control (say, actions of management) and what they can’t, such as the economy in which they operate. This type of strategy will drive a fund manager towards certain stocks and away from others.
From time to time, markets become detached from valuation reality and when they do, fund managers like me appear to be incapable of delivering good outcomes.
I appreciate this can be an uncomfortable journey for investors but valuation is the only reliable predictor of long-term investment returns.
I believe we are closer to an inflection point. The global economy is increasingly vulnerable. China is visibly slowing and the eurozone has slowed significantly.
The US looks set to slow as Trump’s fiscal stimulus wanes. The UK is one of the few bright spots – employment, for instance, is at its highest level since 1971.
I remain focused on capturing the opportunity that exists in parts of the market that have been left behind since we voted to leave the EU nearly three years ago.
The result is a fund that has a strong but selective bias towards profoundly undervalued companies, many that are exposed to the UK economy.
Crucially, the portfolio is positioned how I want it to be and is completely focused on a valuation opportunity, the likes of which I haven’t seen for 30 years.