“For the first time in a while, the UK is a stock-picker’s market.”
It is a statement I have heard quite a few times when I have been meeting UK equity managers in the past few months.
After five years of uncertainty, many experts believe the Brexit deal and the success of the UK’s vaccine rollout scheme are the catalysts the market has been waiting for.
Some sectors have already felt the full benefits of the recovery, but with the UK still undervalued versus its global peers, there are bound to be more opportunities in the offing.
However, there are caveats. For the past decade growth has been dominant style in markets, but the value rally seen at the end of 2020 has given investors food for thought; as has the proliferation of the Covid-19 Delta variant, which continues to threaten the underlying strength of the global economy.
To tap into UK plc you need a true 'go anywhere' fund, with a proven track record of succeeding in any environment. This week’s fund has definitely ‘been there, done that and got the t-shirt’.
The SVM UK Opportunities fund is a bottom-up, pragmatic, stock-pickers fund, with a relentless focus on fundamental research. Manager Neil Veitch – who joined the Scottish boutique in 2006 and runs a number of strategies for the business – is very disciplined on valuation and the majority of the portfolio is usually made up of value holdings.
Historically, the fund has been cheaper than the market, however, Veitch is not beholden to a rigid value philosophy, and he will invest in growth stocks when opportunities arise.
The fund is largely constructed of three types of stocks: value stocks that are priced below the market (40-80 per cent of portfolio); growth at reasonable price (GARP) stocks that are misunderstood growth (10-40 per cent); and high growth stocks that trade below intrinsic value (0-10 per cent).
Ideas come from numerous sources, including company meetings, screening and broker research. The team uses four different screens – which can be used in isolation or used together – and does not rely on sell-side research.
Price targets are set for all holdings ensuring there is sell discipline. As a stock approaches a price target – as was the case recently with Swiss healthcare company Roche – the manager will sell the position and recycle the capital into higher conviction ideas.
The fund is long-only but can use hedging. It also has the ability to short individual stocks in rare cases.
Diversification is important and the fund is broken down into seven baskets of stocks, with different underlying economic exposures. This allows the manager to easily see where the risk is being taken at a sector level and he can adjust accordingly. SVM does not use stop losses, but a real-time monitoring spreadsheet will alert the manager to any large changes in individual positions.
