‘Terry Smith’s great, but you need small firms too’ Markets Hub

Liontrust Special Situations manager Anthony Cross tells Sam Benstead why a ‘buy-and-hold’ strategy can work for all companies, regardless of size

There are not many British fund managers who come close to the success of Terry Smith and Nick Train, Britain’s most renowned “buyand-hold” stock pickers. But Anthony Cross, manager of the £ 5.6bn Liontrust Special Situations fund, is among them.

Since the fund’s launch in 2005 it has made investors 450pc, compared with the average manager’s return of 135pc. It has even outpaced Nick Train’s Lindsell Train UK Equity fund.

So what is the secret to its long period of excellent returns, and can the same formula keep on delivering for investors?

Telegraph Money quizzes Mr Cross, who has managed the fund since its launch, and alongside co- manager Julian Fosh since 2008.

WHO IS THE FUND FOR? It’s for investors looking to own highquality British companies that can grow sustainably over long periods.

The fund will do better in normal times and when markets drop suddenly, but when beaten- up “value” stocks such as mining and oil companies make a comeback, as is happening today, the fund will tend to lag the market.

WHAT’S YOUR INVESTMENT STRATEGY? We look for companies with assets you can’t touch or see, known as intangible assets. This means firms with strong intellectual property, distribution networks, brand power and loyal customer relationships. A company needs to be dominant in one of these areas to make it into the fund.

Research and development spending is also key as it means a company can maintain its edge. Healthcare, software, engineering, media and consumer brand companies can all have these characteristics.

We avoid “cyclical” companies whose fates are linked to rises and falls in economic data, such as airlines or traditional retailers. Crucially,

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telegraph.co.uk/ markets-hub we don’t take a view on politics or economics and instead focus on identifying excellent companies. We are stockpickers, not forecasters.

HOW DO YOU KNOW WHEN TO BUY OR SELL SHARES? We make sure we buy companies when they have been unfairly ditched by other investors and are cheap, but once we buy we rarely sell. When a firm we like is in the fund, we allow it to become more expensive as the best companies can keep growing.

A common investment error is to sell your winners. The secret is to find the right company and then leave it to work wonders. We have owned about 100 companies since the fund launched: 50 are still in the fund, 20 were acquired and we sold 30.

WHAT DISTINGUISHES YOU FROM RIVALS TERRY SMITH AND NICK TRAIN? I have a lot of respect for Terry and Nick, and there are similarities in our investment approach. However, we stand out because we also invest in smaller companies.

Around 30pc of the fund is invested in shares on Aim, London’s junior stock market. This is where some of the most innovative and fastest- growing firms are. It’s important to get acorns into your portfolio that can grow to become giant companies.

Smaller companies can be more expensive, but we don’t mind that. Recently, the American tech giant Cisco agreed to take over Aim- quoted IMImobile, a cloud computing company we owned in our fund, for a 48pc premium to its share price. What can look expensive to one person can look cheap to another buyer.

WHAT HAS BEEN YOUR BEST INVESTMENT? RWS Holdings, a scientific and intellectual property translation firm. We bought shares for 50p when we started the fund and now they trade at £5.50. We like it because the founder still

AND YOUR WORST? The AA, the motor breakdown company. We bought it for around £2.50 a share in 2014 and sold it this year at close to 50p a share. It has been a miserable journey along the way.

It had far too much debt and new management teams were not able to

HOW ARE YOU PAID? I get a share of the fund’s revenue, so the bigger the fund the more I get paid. This means that I am not chasing short- term performance. I have my own money in the fund.

£5,580

What £1,000 invested at launch would now be worth

WHAT WOULD YOU BE IF NOT A FUND MANAGER? A farmer. I was born on a farm in Suffolk.