The LeggMason fund formerly run by Mark Slater is continuing to underperform the market despite a ...
The LeggMason fund formerly run by Mark Slater is continuing to underperform the market despite a change in manager, investment remit and portfolio construction.
LeggMason Investors UK Emerging Growth fund, previously known as the Slater Growth Trust, has performed poorly over the past month due to market volatility, according to its new manager John Johnston.
He said: "There is always volatility at the bottom of the cycle. This has also been caused by more activity from momentum players and hedge funds."
Johnston added that he is picking long duration stocks, which explains why the fund's poor performance has not yet been lifted significantly.
Since it has been managed by Johnston, LeggMason Investors UK Emerging Growth fund is ranked 293 out of 301 funds in the UK All Companies sector, over three months to 7 March, returning -10.3% on an offer to bid basis. Over one year, the fund has returned -40% and is placed 287 out of 292 funds in the sector.
The fund's three-year performance has seen returns of
-10.6%, placing it 233 out of 237 funds.
But Johnston believes the fund will be a top decile performer by December. Under Slater, stocks were picked for their Peg ratio, their cashflow and their relative strength. Johnston said he still takes account of a company's Peg, but he focuses on buying into stocks before they show relative strength.
Johnston said: "I try to identify companies that have emerging growth. I invest in firms regardless of their size and aim to target those that reach the pot of gold at the end of the rainbow. The realisation of the pot is all important, rather than the size of the company."
Before Johnston took over the fund, he said it contained many dull stocks in the leisure and retail sectors, for example, which, he said, accounts for its low three-year performance.
By contrast, Johnston favours the technology sector. He particularly likes Autonomy, a knowledge management firm involved in technology that enables computers to understand the content of written text. He is positive on software companies such as this because, he said, they do not need a lot of capital equipment before growth is achieved.
Riversoft, involved in network mapping software, is another of Johnston's favourites. He said it gained 39 new clients when it announced its new business performance figures recently.
The biggest stock in the fund's portfolio is Turbo Genset, which develops small-scale power generation motors, generators, alternators and inverters. Johnston said: "Turbo Genset has a unique position. Its business will profit because there have been a lot of power outages in the US as it has not built any new power stations for 15 years, despite a massive population increase."
Euro Sales Finance, a short-term finance provider, is a good stock, Johnston said, because it is rolling out through Europe and can move faster than the big banks. Johnston invests in firms he believes have unique selling points, as well as significant barriers to entry. "We evaluate each stock on a consistent basis, according to its power balance and quality. These evaluations are ongoing. It is vital to have as many ideas a possible to keep the stocks in a portfolio fresh."
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