Menu Menu Menu Login Login Log in Search Search Search

Special situations: a thirst for profits?

| Head of Investment Analysis | 3 April 2017 | A A A
Special situations: a thirst for profits?

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

The thirst for gin is unquenchable, by all measures. Consumers poured 40m bottles of the spirit into their G&Ts last year, as sales topped £1bn for the first time ever. Its rise to prominence has played out quickly but was recently honoured by the Office of National Statistics, who have included gin in their basket of goods used to calculate inflation each month.

Trends are easy to see once they’ve happened, but in November 2014, when a little-known premium tonic water maker called Fever-Tree floated on the stock market, the future was more uncertain. Shares in the firm were priced at £1.34 back then, valuing the business at just over £150mn. Today, nearly two-and-a-half years later, the business is worth £1.7bn with investors able to sell their shares for close to £15. Please remember, past performance is not a guide to the future.

That’s the thrill of investing. Few would have thought an unknown tonic water producer could capitalise on the growing gin market, knock Schweppes off the shelves and grow into a billion pound business. But those that did have enjoyed an 11-fold increase in their investment.

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

There’s no denying this is an extreme example. For every Fever-Tree there are many smaller companies that don’t turn out so well, where investors get back less than they invested. When it comes to picking shares, it’s so important you take the time to analyse financial reports, listen to CEOs discuss strategy and carry out market research. The rewards can be handsome, but the effort is considerable.

Or, you could leave the analysis, dreary annual reports and market research to professionals. Safe in the knowledge that while you’re out making the most of your free time, your money is being looked after by some of the best investors in the stock market.

Leave it to the experts

Finding the best fund managers presents its own challenges, though. Comparing managers across sectors and geographies is like comparing neurosurgeons with orthopaedic surgeons. Different markets require different skills, and without lots of information it can be difficult to know who possesses what before deciding where to invest.

This is why we launched the HL Multi-Manager Special Situations Fund sixteen years ago this week - to offer investors access to our selection of the best fund managers in the world. In our view, the fund is packed full of talent and to show why it’s worth looking at a few of the top 10 holdings.

Giles Hargreave’s experience, and backing from what we believe to be one of the best resourced teams for UK smaller company investing, provide the Marlborough Micro Cap Growth Fund with plenty of fire power. Smaller companies tend to receive limited analyst coverage, meaning there is good opportunity for those willing to hunt for hidden value in this higher-risk area. Over many years, Giles Hargreave, has proved adept at just that.

Also in the top 10 is another smaller companies fund, this time run by the team at Old Mutual. Managed using a combination of their economic views and stock picking abilities, the Old Mutual UK Smaller Companies Focus Fund takes a different approach but has also delivered consistently positive stock picking over a number of years, according to our analysis.

Investors in either fund will have been rewarded by the managers’ decisions to invest in Fever-Tree at flotation. The drinks firm is now the largest holding in both funds.

Further afield, and investing in altogether larger businesses, is David Gait, Sashi Reddy and the team behind the Stewart Investors Asia Pacific Leaders Fund. Asia is such a diverse region, and with rising domestic consumption as well as other favourable demographic trends, we are positive on the long-term prospects for this higher-risk area. More importantly though, the Stewart Investors team have built one of the most successful stock-picking records we have ever seen. Please remember, past performance is not a guide to the future.

We have known all three of these teams and their managers for a long time, having tracked their progress since they started managing money. The results have been remarkable, as the table below shows, and we believe for long-term investors these adventurous funds could make great investments. The value of investments can rise and fall, so investors could make a loss.

Current fundFund ManagerCareer start dateCurrent value of £10,000 invested at start dateKIID
Marlborough UK Micro Cap GrowthGiles HargreaveNovember 1998£318,300KIID
Old Mutual UK Smaller Companies FocusTeamJanuary 2001£138,400KIID
Stewart Investors Asia Pacific LeadersDavid Gait, Sashi ReddyJune 1988£448,800KIID

Past performance is not a guide to future returns.
Source: HL, correct as at 28/02/2017.

Feb 12 – Feb 13Feb 13 - Feb 14Feb 14 – Feb 15Feb 15 – Feb 16Feb 16 – Feb 17
Marlborough UK Micro-Cap Growth16.54%39.31%-3.16%8.28%28.07%
Old Mutual UK Smaller Companies Focus22.78%39.51%-3.45%10.6%45.42%
Stewart Investors Asia Pacific Leaders17.45%-9.64%29.33%-4.58%26.05%
HL Multi-Manager Special Situations14.23%12.16%10.13%-0.06%26.64%

Let HL do the hard work for you

Investing in funds won’t be for everyone. Some will always prefer to do their own research, track the progress of individual companies and construct their own share portfolio. For others, though, funds can offer a great way to access some of the most dynamic businesses listed on the stock market.

And for investors who want exposure to our selection of the best funds, including the three discussed above, the HL Multi-Manager Special Situations Trust could be an answer.

The idea is simple – a diversified selection of the most talented fund managers, regardless of where they invest.

Roger Clark and Lee Gardhouse meet hundreds of fund managers each year, and use sophisticated quantitative analysis to identify those who can consistently deliver exceptional returns for investors. We believe the results more than justify the extra costs involved with a multi-manager approach.

The fund is managed by our sister company, HL Fund Managers Ltd, and aims to combine our favourite investors from a blend of sectors and countries. Day-to-day management is taken care of by Lee and Roger, who monitor the fund each day to ensure our investors keep becoming part owners in successful companies like Fever-Tree.

More information on the HL Multi-Manager Special Situations Trust

This article is not personal advice. If you are at all unsure of the suitability of any investment for your circumstances, please seek advice.