L&G’s Richard Penny said has seen the fortunes of his UK Alpha Trust reverse after a disappointing couple of years as investors’ risk appetite has increased.
Mr Penny believes he is probably one of the largest private investors in the fund, which he has managed since launch in 2005 and which experienced some tough times in 2011 and 2012.
The manager described these years as “disappointing” for the fund, which focuses on deep value and organic growth stocks, which can double their share price in three years.
“Everybody was risk averse – I was buying the bargains but they wouldn’t go up,” he said.
“People would tolerate no risk whatsoever in 2011 and 2012.”
In July 2011, the fund had £223.5m in assets, which by the end of September that year had fallen to £173.1m. The fund is currently £184.5m in size.
Since its dip, the fund has bounced back and it is currently second quartile, rising 30.2 per cent in one year, compared with a 25.7 per cent rise for the IMA UK All Companies sector, according to FE Analytics. In three years the fund is third quartile, and in five years it is top quartile.
Mr Penny argued that “risk appetite has been very positive” since July 2012, when the European Central Bank president Mario Draghi made his now famous speech that he would do “whatever it takes” to stop the troubled eurozone region from falling apart.
The manager said that while he had “missed out” by not investing in RBS and Lloyds Banking Group as their share prices have rocketed from their crisis lows, he was “not keen on banks in general,” and the fund had benefited from his decision not to hold them in the past.
“Maybe I should have looked at Lloyds, but it had a lot of property loans and a lot of consumer debt. I missed a trick on that,” he said.
The stocks Mr Penny buys are often beaten-up and on very low valuations.
Although he estimates his hit rate is only 55 per cent, those that do well can be immensely profitable.
“When they do rise [in share price] they come on the radar and people are willing to take them off your hands,” Mr Penny added.
One of the fund’s greatest success stories is Immuno-Dynamics, which carries out vitamin D testing and has seen its share price rise strongly from £1 to £10.
Mr Penny bought the stock before the 2008 financial crash and did not profit from it until 2010, although he has since sold out of it as part of UK Alpha’s strict stock discipline.
The manager suggested that with the exception of oil and gas, he had not been finding value in mid-cap stocks for the past few years, and at the end of September the fund only had a 5 per cent weighting to stocks with a market cap of between £20bn and £50bn.
Instead, the manager is seeing opportunities in the AIM market, which he said had benefited from a change of rules in August meaning that stocks from this market could be included in Isas.