‘I’m bullish on Britain but won’t touch its shares’

A ‘go-anywhere’ investor, David Coombs of Rathbones tells Sam Benstead why the best opportunities are on the other side of the Atlantic

Fund managers who can invest anywhere, from global stocks to bonds and commodities, have a unique perspective on what is a good or bad investment.

By taking an unrestricted approach, they can genuinely scour the planet for the best opportunities rather than being forced to pick winners from a limited pool of assets.

David Coombs is one such manager. He oversees more than £1.2bn in his Rathbone Strategic Growth fund, which aims to return three percentage points more than inflation every year.

He tells Telegraph Money why he will not touch British stocks despite his confidence in an economic rebound, how he is defending his portfolio against inflation and why, once someone buys his fund, they should forget about it forever.

WHO IS THE FUND FOR? Investors who want stock market-style returns without as much volatility. My wife is the classic investor in this fund: she’s 50, an accountant and quite risk averse, but she wants her money to work hard for her. All her pension is in this strategy.

Financial advisers will use this fund as the core of their clients’ portfolios and then add riskier investments around the side. It’s the kind of fund that you buy and forget about. I am not trying to excite anybody and want steady growth. It’s made about five percentage points more than inflation every year for more than a decade.

HOW DO YOU CHOOSE INVESTMENTS? In the stock part of the fund, which accounts for about 60pc, we buy companies with low debt that create a lot of value when they invest and make a lot of profit. We only buy a stock if we are confident it can survive an economic downturn. Investment risk for me is a company dying out, rather than its share price swinging violently.

Buying businesses that have these characteristics is expensive, but I am telegraph.co.uk/ markets-hub happy to pay for quality. Adobe, for example, is the market leader in creative technology. David Hockney is probably using Adobe to do art on his tablet. It maintains a digital edge and allows creatives to retain their intellectual property.

WHAT WON’T YOU INVEST IN? We don’t want hyped-up stocks, such as Tesla. We prefer companies that provide the picks and shovels for an emerging theme. In the electric vehicles market, this would mean owning businesses that make the parts rather than carmakers themselves.

WHAT ABOUT BRITISH STOCKS? Foreign companies offer better returns for the risk you have, particularly American ones. This has nothing to do with Brexit. Rather, the London stock market is full of the types of business we don’t like: energy firms, banks and traditional retail. We would rather own Nike than Marks & Spencer. You can’t find companies of the calibre of Amazon, Adobe or Microsoft in Britain.

It is true that British stocks are cheap, but that is not a reason to invest. We think the market is full of value traps: companies that are cheap for a reason. Only a couple of domestic companies meet our criteria, such as Legal & General and Vodafone.

WHAT HAPPENS IF WE GET A SPIKE IN INFLATION AFTER THE PANDEMIC? It’s a possibility, but we have lots of investments that protect against inflation in our portfolio and lots of cash to buy stocks if markets fall.

We own Canadian and Australian government bonds. If Britain gets an inflation hit, those currencies will do well against the pound. We have increased our holdings in American government debt that pays interest linked to the inflation rate, so payouts will rise if inflation does.

The companies we buy also have pricing power thanks to their loyal customers. They can pass on rising business costs and not see a huge dent in profits. Their shares might fall, but we think that they will survive inflation and become stronger businesses.

WHAT HAS BEEN YOUR BEST INVESTMENT? We bought some stocks in March last year that have quadrupled. Aptiv, a car parts company, has gone from $38 to $146 a share.

AND YOUR WORST? We lost almost 70pc of our money on Microfocus, a software company. It was hard to sell at a loss but it was the right decision.

HOW ARE YOU PAID? I have a basic salary and a bonus linked to performance. All of my money is invested in my own funds.

WHAT WOULD YOU BE IF NOT A FUND MANAGER? An out-of-work actor. Alongside maths it was what I loved at school.