The aim to provide consistent long-term total return through a concentrated portfolio of between 40-60 stocks certainly seems to be on track so far, with the fund outperforming both the sector and the benchmark in both 2012 and 2013.
Mr Himsworth, who has run the fund since its inception, notes: “In terms of the process of the fund nothing has really changed because there has been no real change to my style, having run retail money since 2001.”
The manager explains he is trying to find investment themes to pick up on and in particular on bad news on the basis that “there is always someone winning on the other side of it”. An example is the food retail industry, which has had a tough time as the large discount stores such as Aldi and Lidl are taking the share of supermarkets such as Morrisons and Tesco. “We’ve played that quite successfully through Booker, which is a different beast as it’s a cash and carry,” he says.
However, he also looks for changes occurring on different timescales, such as long-term fundamental changes in IT security. “I try to have lots of different things happening in the portfolio at any one time.” He adds: “That is combined with strong due diligence and strong stock selection – picking individual winners within those themes. But the most important factor above all else is to construct a portfolio where the stocks actually sit together very well.
“I try to control risk at all times – realising there might be quite a high stock-specific element within the fund I want to make sure we are not creating huge skews throughout the portfolio. If we’re playing a certain theme, we try to pick the best idea rather than trying to pick four or five companies playing the same thing.”
Since launch, the fund has delivered a return of 65.3 per cent compared with the IMA UK All Companies sector average of 49.62 per cent and the FTSE All-Share return of 40.93 per cent, according to FE Analytics. In addition the portfolio outperformed the sector average in 2013 by 8.93 percentage points with a return of 35.14 per cent, while the FTSE All-Share posted a return of 20.81 per cent.
Mr Himsworth says: “There hasn’t been a massive change [within the portfolio]. What we’ve tried to do is evolve the themes rather than rapid change. We are trying to generate ongoing returns by having lots of different ideas throughout the fund. No single success means we can pack up and go home for the rest of the year. If we have a success, great, then we try to find another one.”
He points out that 2013 was more a year of trying to avoid some of the ‘duds’ in the market, such as mining. The fund had some exposure to the sector at the start of 2013, but it was quickly cut as “it was evident that wasn’t going to be the place to be. That was probably the biggest negative for the fund, albeit not huge”.
Looking ahead, Mr Himsworth is aware of a need to temper enthusiasm and take a step back and look at why the market has done so well. “So [we are] a little bit more cautious. We want to tread carefully, not race into things and not be too surprised if there is a modest setback in the near term. But we’re also making sure we’re very active. So if a stock does particularly well we’re not averse to locking in the gain, we don’t fall in love with companies. We’re trying to think a little bit outside of the box. There is a lot of macro analysis out there, but a lot of it is guesswork. What we want to invest in is actual fact.”
This fund benefits from a manager with a clear style and a long track record that stretches beyond the life of this fund. It appears to be gaining momentum and the addition of a three-year track record later this year should only boost that.
EXPERT VIEW
Darius McDermott, managing director, Chelsea Financial Services
VERDICT:
“This fund started life as the Eden UK Select Opportunities fund and was rebranded after City Financial bought it in 2012. The manager moved with the fund and has continued his good performance – his stock selection has worked well. The fund is multi-cap and has a bias towards companies towards the lower end of the cap scale with roughly 40 per cent in mid caps and 28 per cent in small caps currently. Favoured sectors, very much like the other two funds, are financials, industrials and consumer services, although the concentration is less.”
