Robert Moss took over the running of INVESCO GT UK Growth unit trust in October 1998. He tells James...
Robert Moss took over the running of INVESCO GT UK Growth unit trust in October 1998. He tells James Thorneley how he has altered the portfolio since then and why he thinks a risk aware approach is important.
How would you describe the aims of the fund?
I am not aiming to shoot the lights out. It is a diversified fund not a theme fund. If a certain theme is in fashion this will not be the best portfolio to invest in.
What I say to IFAs is that if their clients want a technology fund then don't buy this unit trust. If they want a core holding with the stability to outperform the All-Share this is the fund for their clients.
What is your investment style?
Firstly it is positioned to be a dependable fund competing against the FTSE All-Share. It is growth oriented with controlled risk and a disciplined approach.
When selecting stocks I am looking for growth in three types of areas. Growth in the market, growth in market share and growth by innovation. Mobile telephones form a massive growth market not only with more people having phones but with the addition of data communication, mobile telephony should expand further.
While food retailing is not a growth market stocks such as Tesco can be seen as attractive as over the past 10 years the company has doubled its market share.
Growth by innovation can be illustrated in the dull market of vacuum cleaners. The design of Dyson cleaners really made a difference.
Growth companies get high returns and that naturally attracts competition so I analyse how sustainable the high level of returns will be. I look at the company's franchise, the barriers to entry in the market, the strength of the brand and the quality of the competition the business faces.
Then I look at the company's management. It is not much good having a great idea but not being able to sell it. The quality of management is key to driving successful execution.
Does it matter how many of these tenets - growth in the market, growth in market share, growth by innovation, franchise and management - a stock possesses?
The more tenets a stock possesses means it is bound to be on a higher valuation, for example Autonomy.
This company sells knowledge management software, which categorises data in any language, which is key because it enables the company to sell the software in any country. The software also enables internet companies to build profiles of their site users.
By contrast, Independent Energy is on a relatively weaker valuation. The company generates from its power station near Blackpool and then markets electricity.
It is gaining market share by offering users lower prices, but it has not got a strong franchise because another company could come along and offer an even lower price to energy users.
Are you more interested in the portfolio's top 10 overweight positions or the top 10 holdings?
The FTSE All-Share benchmark means I am competing against recovery, growth and index funds in the Micropal UK All Companies sector. The fund's performance comes from where you differ from the benchmark and I have found you don't have to take massive positions to outperform.
The top 10 overweight positions are the driving force behind the performance of the portfolio. These are the ones which I really believe in. It is a diverse list with no particular theme reflecting the stock-specific nature of the fund. For instance I am overweight Autonomy because it is in a growing market and is innovative.
Another example is Biocompatibles which is a healthcare company and makes stents.
If you have heart disease what very often happens is that the arteries narrow and a stent is a stainless steal scaffolding which is inserted into the artery to keep it open. The company produces the best stent because of the coating it has on its exterior. What obviously happens when something foreign is inserted into the body, is it usually tries to reject it. This particular stent is rejected by fewer patients.
Three years ago the share price was £13 and looked a great story, people got carried away with the management fuelling overgrown expectations. It had a marketing deal with Johnson & Johnson in US, but the product did not have approval to be used in the US. Johnson & Johnson dropped the company and Biocompatibles' management's creditability was completely undermined. By November 1998 when I saw the new management the share price was 70p. I saw they had now got approval for the stent to be sold in Europe and the new management had a much more pragmatic approach. The shares looked good value at 70p with not a great deal of downside so I was not going to lose a lot of money.
The business subsequently announced a distribution deal with the US company Abbots Lab and the share price went up to £6. So I choose to take a lot of profit. In the recent technology sell off the shares fell down to £2 which I saw as a buying opportunity.
The stent has not yet been approved for sale in the US or Japan but approval should be gained this year. The stent should do well in Japan. In essence it is growing by innovation and has a good franchise and management
How do you view the fund's top 10 holdings?
The largest 10 holdings are not the ones driving the performance. They consist of a lot of household names which are unlikely to significantly outperform. These holdings provide the fund with stability. The key here to selecting these stocks is not to be caught out and not to take positions you do not mean to. Apart from Autonomy they are all big stocks. Look at BP it makes up 6.2% of the fund and 6.3% of the index, so I am 0.1% underweight. I do not have a view on BP so I do not take a position. Almost 50% of the fund is in this risk control area.
How do you manage the portfolio?
I have a very discipline approach. For each stock with an active position I set a price target. This is very mu
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