security, specialist retailing and support services among themes on forthcoming fund range
Teather&Greenwood's recently-launched UK Smaller Companies fund is just the start of significant expansion of the company's retail fund offerings, according to ex-Perpetual fund manager John Sweet.
The business and investment structure developed to support the UK Smaller Companies and Teather&Greenwood Investment Management (T&G) is designed to enable further products to be added on when needed. Considering the support of T&G's existing analysts and infrastructure this is likely to be sooner rather than later, Sweet said.
The UK Smaller Companies fund is run with a number of investment themes but retains Sweet's fundamental investment approach, a leaning towards the value end of the small-cap market.
On the question of themes, Sweet said there are three exciting areas he is focusing on: security, specialist retailing and support services, where the products or services being offered have to be needed rather than wanted.
Sweet's management style involves the use of a formula for calculating the risk associated with management, which he then feeds into a broader framework of factors, including relative market price, that will decide whether to invest in a stock or whether to sell out.
It is a process Sweet has developed in order to keep the fund at low risk levels.
However, the use of the process does not mean that other opinions will be ignored; if the market is suggesting a stock price is peaking, then Sweet said it is time to sell.
In selecting stocks, one of the most important factor is quality of management, something that Sweet said involves rigorous company visits and sifting through data in order to track down the better managers out of the 2,000 companies from which the 60 or so portfolio stocks are picked.
He said: 'When I worked at Invesco, myself and another manager would visit about 400 companies per year, or 200 each. I don't intend to visit that many now but that is because I can use T&G's resources.'
Sweet has 23 T&G analysts from which to draw data on the companies that he considers for the portfolio.
The fund is not exposed to more than 3% in any individual holding in order to spread risk around. Sweet gives a higher weighting to lower risk/reward stocks. The fund avoids carrying more than 20 out of 60 stocks considered higher risk.
Most of the holdings have a market capitalisation value between £20m-£100m, with P/E multiples of 25 or less, or 16 or less for the more value-oriented investments, although that does not totally exclude companies with higher multiples founded on a history of higher growth rates.
Looking ahead, Sweet said there is no evidence of a sharp V-shaped recovery in markets but he does believe a sustained recovery should be on the cards by the second half of this year.
He has also discounted recent comment that UK smaller companies look set to be ignored by larger institutional investors due to poor liquidity, something that some analysts believe could stifle share price appreciation.
He added: 'There are plenty of examples of smaller companies that have done well,' said Sweet. 'Smaller companies can do well even in an economic downturn, because their niche grows irrespective of the broader picture.'
Contact 020 7426 9000, e-mail [email protected], or log-on to: www.teathers.com.
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