Peter Seabrook had more than 20 years' experience in the City when he joined SG Asset Management jus...
Peter Seabrook had more than 20 years' experience in the City when he joined SG Asset Management just over three years ago and then helped launch its UK Growth fund.
SG was started up by Seabrook, Nicola Horlick and John Richards in July 1997 and the group now has a range of seven funds. These include Seabrook's frA rated UK Growth fund, which now has £59.4m in assets, Dino Fuschillo's frAA rated European Growth Fund and Alan Torry's frAA rated Technology Fund.
Over his career, Seabrook has worked at Barings, Morgan Grenfell and Fleming Asset Management. He talked to Robert Stock.
How does the SocGen style differ from other management groups?
We wanted to bring what we believed were the strengths of the processes that John worked with at Mercury Asset Management, Nicola at Morgan Grenfell and myself at Flemings and leave behind the weaknesses. At the time a lot of active managers were under performing the market, and tracker passive funds had become all the rage.
Active managers had underperformed for the previous five years, and some of the institutions had become too stylised as value managers, or momentum and growth managers. We determined that we weren't going to be stylised, that we would be flexible and pragmatic in our approach, and try and therefore outperform at all stages of the economic cycle
We were also determined to make the process just as simple and as logical and as clear as we possibly could. We felt that some of the processes had become too complex. Again, that is a matter of history and too many people having a say in some of the bigger institutions.
How would characterise that style?
It is flexible, and it is probably more growth at a reasonable price than anything else, but even in the two and a half years that we've been up and running, we've had a cyclical market, a growth market, and a momentum market and we've been flexible enough to adapt to all of those.
In general the retail side of businesses, whether closed end funds, investment trusts or unit trusts, tended to be run separately, under the different process and often a different style as well.
We have brought the institutional pension fund-type process to bear on the retail funds, and that is to have a very clear focus on the funds we are trying to achieve.
The UK Growth Fund, which was the first one we launched in February 1998, has a very clear remit to beat the index by 2% net, after fees each year. Since fees are 1.5%, that is 3.5% gross minimum. The whole process is designed to achieve that in terms of the risk that we are taking in the portfolio and the rewards that we are going to get.
How do stock picking and top down macroecomic views combine?
We didn't feel that we had a great edge in terms of fundamental, top down background analysis, asset allocation, or sector selection. We do the work our competitors do in terms of looking at all the major markets, currencies, growth rates, inflation rates, interest rates and so on, to set a background for the process and the portfolio construction.
Similarly, we look hard at the sector weights in comparison to the benchmark, the FTSE All Share index, because that is what we are trying to beat. Each of the 14 of us on the UK team has a sector responsibility, and each week on a Monday afternoon, one of us presents a paper on the sector.
Monthly, we have a sector target meeting to set our targets relative to the All Share Index, and fund managers are only allowed to be 2% away from that target. It is crucial is that all the managers are pointing in the same direction, so that if we are overweight pharmaceuticals everyone has to be at least neutral to overweight.
We constrain the risk in the portfolio at sector level to only 20% of the portfolio risk. Logically therefore, we only spend 20% of our time and resources looking at sectors, and 80% of our time looking at individual stocks and companies, because that is where we believe we are going to get 80% of the 3.5% outperformance.
You are known as a stock picker. Do themes play any part in your investment process?
Yes they do and this rolls out of the asset allocation and the sector side. There is nothing particularly clever in the themes that we are pushing within the portfolio such as technology; such as outsourcing; such as savings, demographic shift. There are going to be 40% more people over the age of 60 in 20 years time, what does that mean for industry? The savings theme is in terms of the changes in pension laws and the amount of personal wealth over in the last 20 years. These are themes which have above average market volume growth.
The trick is to find those themes, find the industries that benefit from them and then find the companies that are at the forefront of those sectors, and then look at the valuation of those companies to see if the excess growth that they are going to get from those themes over the next five or 10 years, which will translate into profits, earnings and dividends, is already discounted in the current market share price.
How do you approach the valuation of stocks?
The market is extremely volatile, and it is going to stay very volatile. The market is being driven by hedge funds, day traders, not by the bigger institutions who tend to be more holders of stock. These guys are moving share prices around on small volumes relative to the market cap, far more than used to be the case. That is going to continue.
Valuation criteria therefore, become even more important, and being contrarian and selling things when they are going up and buying them when they're going down, rather than vice versa, is absolutely crucial if you are
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