dws uk growth fund one of only seven in uk all companies sector with top quartile returns in five of last seven years
The DWS UK Growth fund is one of only seven in the UK all companies sector to have delivered top quartile returns in five of the last seven calendar years.
Charlie Curtis has been running the DWS UK Growth fund since launch in June 1995, over which time it has built a strong relative track record and reputation for consistency of returns.
Curtis runs in the fund in a pragmatic fashion, predominantly favouring a buy and hold strategy with extra value added through trading opportunities at the margins.
Curtis is also a member of the group's UK portfolio selection committee, which analyses the FTSE All-Share index to produce a list of the group's favoured stock picks. Through exposure to this model portfolio, DWS ensures a degree of commonality of returns across its fund ranges, although managers are given scope to stamp their own personality on their funds.
How would you describe your approach to investing?
People approach portfolio construction in different ways but I am generally a patient investor with low turnover. I typically run a core of stocks comprising 80%-90% of the portfolio held over a long period and then take advantage of trading opportunities at the margins to add value.
DWS has always been very strong in portfolio construction. We avoided getting sucked into the technology boom and instead brought in extra controls over and above the active money and Barra controls in place at the outset. The controls limit underweight and overweight positions to 3% either side of the benchmark for individual stocks and 4% for sector weightings.
How does the model portfolio system work?
Commonality with the model portfolio depends on what the fund's benchmark is. My fund is benchmarked against the FTSE All-Share and has a target of beating tracker funds by 2% per annum with a maximum tracking error of 6%.
I have 60% commonality with the house portfolio, which is the minimum allowed for this fund. The idea is to provide a skeleton for the funds and particularly our large positions, making sure we are all going in the same direction. So it is the same for Graham Ashby on UK Equity Income and Michael Crawford on Blue Chip. We are therefore all overweight HSBC, GSK, Shell and all underweight BP.
The remainder of the portfolio primarily comprises your own individual ideas then?
I contribute to the house portfolio but there will be special situations I might buy, which will not be common with the whole team. For example, I bought Dixons and Cable & Wireless after they became massively oversold and they may also become longer term holdings.
In the current climate, are dividends increasingly important from a total return perspective?
In an era of low returns, dividend coupons are a useful component of total returns. We tend to invest in good, strong cash generative companies, which will tend to pay a yield.
We do believe that returns from equities will beat cash and bonds, but we will not necessarily see the returns we saw in the 1980s and early to mid-1990s.
Are new investment themes emerging?
Themes come and go and I tend to be fairly cynical of thematic investing. For example, the market has pumped up the value of those construction companies turning into PFI and semi-service groups despite these companies using a lot of capital and working on thin margins.
You have to invest with conviction and although it is difficult to see many areas of the economy likely to do well, we do not invest blindly in themes.
We are very much bottom-up driven and tend to take the hedge fund approach of being overweight the best business in the sector, underweight the worst and neutral weight the sector overall.
DWS is renowned for its team approach, how does that work?
The aim of DWS is to strike a balance between the structure we have as a global house without inhibiting the flair of individuals. I have a good research team behind me. The global research teams analyse sectors using cashflow return on investment as a common tool. We, as individuals, pick out those shares we like and local portfolio management teams use their skill and judgement to time the buying and selling. We can disagree with the local analysts, which triggers debate and adds a dynamic focus on stocks. We also have standalone small caps teams and have just under 30 analysts in the UK.
Do you place much emphasis on visiting companies before investing in them?
One-to-one meetings with companies are taken very seriously and treated as the centrepiece of our analyst coverage. We have a very rigorous process and company meetings help us to compare and contrast different companies within different business industries.
Companies like to go to the City with their results but we like to be proactive and go and see them after that. Companies tend to be pretty accommodating to us, which is perhaps size-related.
It is not just a question of asking whether their share price is going to go up, but finding out whether the management is running the business in the way we would like and in the way that is in the best interests of its shareholders.
If the answers companies give are not always reliable, do the visits add a lot of value?
Models are only as good as their inputs but we think we have a very practical way of analysing companies. A lot of the importance is getting timing right, for example when you have an industry where capacity is being taken out and returns are moving back to the industry average. The process enables us to take these variables and come up with firm prices to target in bull, base and bear scenarios.
In a bull market, optimism takes over and companies can go over these price targets. In a bear market, as we are currently seeing, it is important to differentiate good companies from bad ones within a sector rather than try to call big movements in the market.
Are you disappointed that given UK Growth's long-term track record, it still only has £117m in assets?
UK Growth has a fantastic track record but if we are honest with ourselves, it has been missed in a big way by the industry, because of how we have positioned it. In the past, we have not been as clear about the purposes of each of the funds in the range as we would have liked.
DWS Blue Chip has been seen as our core UK equity fund, but really it is a FTSE 100 vehicle. The recently launched UK Opportunities fund is our high risk/high return fund. UK Growth should be in the core category. It was perceived as high risk but without delivering the returns some of its more concentrated peers in the UK All Companies sector can achieve. The fund has evolved over time as there was a high element of small and mid caps at the start, but my job has always been to beat the FTSE All-Share and the fund still has a slight mid cap bias.
So, the marketing of UK growth has somewhat undersold the fund, given its track record?
Yes, and I think we have not helped ourselves by changing our name three times in six years. Morgan Grenfell was a good well-known name and Deutsche Asset Management was a solid brand backed by the Deutsche Bank name, but may not have appealed to everyone.
DWS has been a fantastic success in Germany but it is up to us to raise our profile and we have plans in place to achieve that.
Name familiarity is important and helps reinforce in people's minds what a good business we have got.
If the fund were to grow markedly in size, would that change your investment style?
There are a couple of small cap positions that would be diluted and micro caps would fall below our investable range, but that is not where we tend to get performance from anyway. I run a lot of money and I have never been inhibited by the size of a fund.
How is the fund currently positioned?
UK Growth is currently pretty sector neutral. The biggest overweight is 1.6% above the index in speciality finance and my largest underweight is 0.9% in mining.
It is mainly stock driven, but with some market feel. Speciality finance provides a good uptick to the markets. Stocks such as Schroders, which has a strong balance sheet, should benefit from markets recovering.
In mining, I only hold Rio Tinto, which provides good returns above its cost of capital and is well managed.
FUND MANAGER: Charlie Curtis
Charlie Curtis joined DWS, then Deutsche Asset Management in 1991 after six years at Mercury Asset Management.
He is now managing director of UK equities and a member of the UK portfolio selection team at DWS.
Curtis graduated from Manchester College, Oxford, with a BA in English.
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