peter webb, manager of outperforming unicorn free spirit and uk small companies, believes success is down to not following the crowd
Funds investing in large-cap defensives are tying themselves to slow-moving investments, according to Peter Webb, smaller companies manager at Unicorn.
Billing himself as the 'last of the contrarians,' Webb described to a City audience the key factors behind the success of his two Unicorn funds.
Unicorn Free Spirit is the top performing fund in the UK All Companies sector over the 12 months to 10 February, returning 1.2% against a sector average of -30%, on a bid-to-offer basis.
The Unicorn UK Small Companies fund, launched in July 2002, has returned -0.1% over the three months to 10 February, against a sector average of -5.4%, to rank third in a field of 73.
The Free Spirit fund can invest in all cap sizes but Webb believes many chastened stockpickers are yet to realise that very often 'big is not beautiful'.
Unicorn is going for growth while other funds are now fixated by dividends, Webb added.
'The fact we find ourselves as the last of the contrarians just serves to remind us of our opportunity,' he said.
Webb's speech included some broader criticisms of London's square mile. He said: 'It is a City driven by fear, following a few years in which it was a City driven by greed. We are just suffering what we are due.'
City players, Webb added, over-capitalised the opportunities in the bull years, managing capital and returns for their own ends, while forgetting customer and company needs.
He said: 'I try to instill into my team that we do not have a future in the City if we do not look after the lifeblood that is actually feeding us ' the companies, the people making the products and services. The City has forgotten that fact.'
Webb predicted the City will be a shadow of its former self over the next decade, so the rewards for fund managers with the confidence and skills to find value will be immense.
Unicorn, he said, is 'inundated with opportunities' missed by the herd. Its asset management involves looking outside the economic cycle at investor, director, private equity, industrialist and corporate activity cycles.
'Many of our competitors are locked into short-termism and P/Es,' he added. 'But fund managers should be contrarian by nature. No two businesses are the same, even if they look the same on paper.'
For instance, Webb said, amid the technology, media and telecoms carnage some amazing small and mid-cap value could be found, locked into near-certain demand.
After outlining favoured methods of valuation ' price to sales ratio, price to book value, price to cashflow, prospective P/E ratios and dividend yield ' Webb picked his most undervalued sectors.
These are electronics and electricals, software and computer services, IT hardware and support services.
His criteria for picking them included stabilising demand, significant cost savings, improving operating margins, attractive valuations and consolidation.
'I am seeing the best valuations of my career,' he said.
His least favoured sectors have been general retailers, leisure & hotels, banks, building & construction and real estate. Webb believes these will all be uncovered by a coming consumer debt crunch.
Explaining why he is bullish about his current stockpicking, Webb cited 'some quite meaty buybacks' and corporate activity. He said he is excited by the record level of director share purchases.
'A considerable number of business owners are putting their hands in their pockets,' said Webb. 'They are saying, 'Mr City, you have given me an opportunity. I am fed up with listening to you'.'
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Launching later in 2019
£80bn funds under calculation