The Mail on Sunday

Dynamic fund has one driving force: growth

- By Jeff Prestridge jeff. prestridge@ mailonsund­ay. co.uk

FUND manager Mark Slater is meticulous about the way he finds stocks for his £721 million Slater Growth investment fund.

First, he scours the UK market for companies that are growing ‘dynamicall­y’, have durable double-digit earnings growth, and are generating lots of cash.

It’s a number-crunching ‘quantitati­ve’ process that straightaw­ay rules out 95 per cent of UK-listed companies.

From those that pass the test, he carries out qualitativ­e work – for example, on the quality of the management – to ensure they can sustain their growth. He will speak to rival companies to see whether there are any potential problems lurking on the horizon.

The very best of these companies then get into the Slater Growth fund. The result is a portfolio comprising 50 stocks, with an emphasis on small to mediumsize­d companies. Only two FTSE 100 companies – Tesco and Prudential – are held in the fund. ‘It’s a diverse fund,’ says Slater, ‘with holdings across a range of industrial sectors. Typically, they’re niche businesses that do what they do very well, either in the domestic or global market.’

Among the fund’s top holdings is Warwickshi­re-based video games maker Codemaster­s, currently subject to a takeover bid from US rival Electronic Arts. Another bidder, Take-Two – publisher of Grand Theft Auto – dropped out last week.

‘Codemaster­s is a business that initially expanded too quickly,’ says Slater. ‘Then new management came in, licked it into shape, and listed it on the London Stock Exchange in June 2018.’

He adds: ‘We bought into the company when it came to market. The shares initially traded at £2.65 but we kept buying them as they fell in price to around £1.50. Now, they’re trading at around £6 and I imagine a takeover deal will be struck at up to £7 a share.

‘We love the company and it ticked all our boxes – growing fast, good cash flow and great management. It’s a shame in a way that the journey has to end.’

The pandemic has caused Slater to be a little more pragmatic in his investment approach.

Although he says half of the fund’s investment­s were not impacted by the economic fallout from Covid-19, the earnings of some holdings were adversely affected.

‘These businesses didn’t become bad companies overnight,’ he says. ‘Their earnings blips will be temporary.’ It explains why he has held stakes in ten-pin bowling business Ten Entertainm­ent and serviced office provider IWS. Indeed, he bought more shares as their prices slipped.

Adds Slater: ‘They’re both good businesses that should thrive as lockdown comes to an end.’ He has also bought into airline company Jet2, in anticipati­on of a surge in demand for overseas travel.

Although primarily a stock picker, Slater believes the backdrop to the UK stock market is more positive than negative – a result of a Brexit deal and the UK being on the vaccinatio­n front foot. These factors, he says, could lead to a ‘tidal wave’ of money coming into the UK stock market from overseas. He is also buoyed by the number of takeovers. ‘The UK stock market has been asleep for a long time and it’s now awake,’ he says.

The performanc­e numbers for Slater Growth are good, both short and long term. Over the past one, and five years, it has generated overall returns of 11 and 71 per cent. Respective figures for the FTSE All- Share Index are minus 7 per cent and a gain of 42 per cent.

The fund pays a minimal income and its stock market identifica­tion code is: B7T0G90. The annual charges total 0.8 per cent.

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