- Julie Dean aims to identify the next stage of the business cycle and the types of companies that could prosper
- Investments in commodity-related businesses initially held back performance last year, but have proven rewarding in 2016
- We expect the manager's experience and unique investment approach to deliver good long-term returns
The TM Sanditon UK Fund launched almost one year ago. Julie Dean, the fund's manager, aims to tilt the portfolio according to her interpretation of where we are in the business cycle. She typically invests in more economically-sensitive companies ahead of periods of anticipated economic expansion, and adds to defensive areas during slowdowns.
How has the fund performed?
The fund launched during a volatile period for the UK stock market. Since launch in June 2015, both the UK's FTSE All Share Index and the fund have fallen in value, although please remember past performance is not a guide to future returns and this is over a short timeframe.
The fund went through a difficult period in the last few months of 2015. Following a torrid time for the mining and resources sectors, Julie Dean saw value on offer and invested in a number of commodity-related companies at the fund's launch. She increased exposure following another sharp setback for these sectors in October 2015, adding to investments in BHP Billiton and Anglo American. However, these companies' share prices continued to fall throughout the year.
Since the start of 2016 however, the fund has outperformed the broader UK market. A turnaround in the performance of oil & gas and mining companies has boosted returns. Relatively low exposure to the financials sector, which has experienced a tougher time, has also helped. Our analysis suggests individual stock selection has also been strong since the start of the year and, in addition to resources businesses such as Tullow Oil and Anglo American, other contributors to performance include supermarket WM Morrison and Ashmore Group, a specialist emerging markets asset manager.
Where is the rest of the fund invested?
Julie Dean believes we are currently entering the slowdown phase of the business cycle. As such, while the fund has some exposure to commodity-related sectors, it has less exposure than the wider UK market.
Elsewhere, the fund is tilted towards 'growth' and 'defensive' areas of the market. The manager defines companies within these categories as those that grow their revenues faster than economic growth, some of which typically demonstrate low levels of volatility and high visibility of earnings. Current investments include engineering firm Babcock and RELX, which provides information and analytics to other businesses. Julie Dean has focused on companies delivering attractive levels of growth at reasonable valuations, although she is aware the valuations of many of this type of business are starting to look expensive. As such, she may look to reduce some of this exposure in the near future. The fund can also invest in smaller companies which are higher risk than their larger counterparts.
Our view on this fund
It has been a rocky 12 months for the UK stock market, which has been felt by funds investing in UK companies, such as the TM Sanditon UK Fund. The business cycle approach involves Julie Dean attempting to identify upcoming trends ahead of her peers, meaning she can sometimes be too early with her views and in repositioning the portfolio. For example, increasing exposure to commodity-related businesses held back performance towards the end of 2015, but has proven rewarding so far this year.
Over the long term, Julie Dean’s views have translated into good returns for investors. She has a strong track record and long history of managing UK shares dating back to 1998, which we feel is invaluable when it comes to assessing the wider economic environment.
We believe the fund offers something different to many others in the UK sector, given its unique investment approach and the manager’s focus on undervalued and often out-of-favour areas of the market. It could therefore provide diversification to a broader UK portfolio. 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 0.45% p.a.
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