The Scottish Mail on Sunday
The man with only one aim . . . to make you a pretty Penny
FUND manager Richard Penny is passionate about the profession he has pursued for more than 25 years. He sees his mission as a simple one – to make investors as much money as possible. He backs his investment zealotry by putting his own money in the funds he manages.
Penny has been plying his trade at Legal & General Investment Management for 14 years, where he runs two funds – UK Alpha and UK Special Situations. Though UK Alpha invests in the smaller company sector, which has long been his speciality, it is at the helm of UK Special Situations where he has enjoyed more recent success.
Since taking over the fund three years ago, he has rewarded investors with returns approaching 50 per cent. Over the past three years, only eight funds among 236 in its immediate peer group have racked up better investment results.
Understandably, Penny is proud of the record, especially given L&G’s bent towards running index tracking funds – which replicate the performance of specific stock markets – rather than the kind of actively managed portfolios he oversees.
He says: ‘My modus operandi is to try to make as much money as possible for investors. It is about delivering capital gain, not a mix of capital and income return. On UK Special Situations I do it by holding a concentrated portfolio of 35 stocks. I back my judgment by investing in the fund myself. I go about my work to make money, not build a portfolio of trophy assets.’
There are two main prongs to Penny’s strategy. First he only buys shares in firms which he believes are undervalued. As he says: ‘I do like a bargain. I do not want to be stuck in a lobster pot that I cannot get out of because I bought shares when they were too expensive.’
Second, he likes to home in on firms where he believes there is a catalyst for a potential improvement in fortunes – for example, a new management team. He then runs with the position, taking some profits if the position represents more than five per cent of the fund’s portfolio.
Though shares are held for two to three years on average, he is happy to bank quick profits if the opportunity arises. He did this last June, when in the immediate wake of the Brexit vote he built stakes in builder Bovis and buyto-let specialist Paragon, whose shares fell sharply. He sold out shortly afterwards when they bounced back. He says: ‘If I can make a 40 per cent profit in two weeks I am happy to do it.’
The fund is skewed towards stocks with market values of between £250million and £5billion, but he is not dogmatic about focusing on small to medium-sized companies.
If he sees an undervalued bluechip stock, he will invest in the hope of it bouncing back, which has happened with his near four per cent position in Royal Dutch Shell, bought 18 months ago. Currency weakness, triggered by last week’s General Election result, could disturb the fund’s relative short-term performance because of its low level of exposure to FTSE100 companies earning revenues overseas.
Apart from Shell, the only other Footsie member among the fund’s top ten holdings is insurer Prudential.
Penny is altogether relaxed. He says: ‘I would rather be overweight in small and mediumsized companies that are entrepreneurial. That is where this fund will make most of its money.’