Chris Rice, manager of the TM Sanditon European Fund, uses a business cycle approach to investing. By forming a view of the wider economic environment he aims to identify when the next stage of the cycle will arrive and the types of companies that will prosper.
We recently spoke to the manager about his views on the outcome of the EU referendum and how the fund is currently positioned. In his view the UK's forthcoming exit from the EU will not disrupt the longer-term path of the economic cycle. He believes we are currently in the slowdown phase of the business cycle and this would be the case regardless of 'Brexit'.
In this stage of the cycle the manager has tended to favour what he calls 'growth defensives', which typically have stable earnings and less volatile share prices. However, Chris Rice has maintained less exposure to this type of company than some of his peers and compared with previous cycles as he believes their share prices are overvalued following a period of strong performance. Although, this means the fund has missed out on some of the gains made.
The manager has, however, retained some exposure to this type of company in order to maintain sufficient diversification within the portfolio. He has specifically focused on those with strong cash flows, and which he views as more attractively valued. This includes a number of utilities and telecoms businesses, and others that are exposed to the faster-growing emerging markets such as beverage companies Pernod Ricard and Heineken.
Within more economically-sensitive areas of the market, the fund currently has greater exposure to commodity-related firms than the broader European market. Chris Rice feels these businesses currently represent good value and, as he believes commodity prices are unlikely to fall further, he anticipates demand for resources will eventually begin to pick up, benefiting these companies.
The manager has, however, reduced exposure to economically-sensitive companies that rely on consumer spending. These businesses performed well in 2014-15 as the collapse in commodity prices lowered energy prices and boosted the spending power of consumers. He now believes consumer strength is starting to wane.
The fund's cash weighting has increased to 10%. This could provide the fund with an element of protection should markets run into trouble and means the manager is able to invest in new and more attractively-valued companies when the opportunity arises. Please note the fund manager has the flexibility to invest in higher-risk smaller companies.
Our view on this fund
We view Chris Rice as a highly-experienced manager within the European sector. In the short term he has missed out on some of the gains made in more defensive areas of the market, favouring those he feels offer greater value. In our view, this positioning means the fund offers something different to many others in the sector and could provide diversification to a wider portfolio.
The business cycle approach means the fund can, at times, look contrarian in nature and its positioning may not always be rewarded in the shorter term. Over the longer term, Chris Rice has successfully repositioned his portfolios based on his wider economic views and our analysis suggests he has also added value through stock selection. The fund currently features on the Wealth 150+ list of our favourite funds at the lowest ongoing charge. Please note the charge to hold investments in the Vantage Service is up to 0.45% p.a.
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