Ardevora’s Lang targets ‘boring’ firms

Ardevora’s Lang targets ‘boring’ firms

Behavioural investing duo Jeremy Lang and William Pattisson have welcomed a return to form of their Ardevora UK Income fund at the start of 2015 after a weaker-than-usual 2014.

The pair, who left Liontrust in 2010 to launch their own boutique Ardevora, fell into the bottom quartile of the IA UK Equity Income sector in 2014. This is in contrast to their strong performance in recent years.

The managers returned just 0.9 per cent compared to 10 per cent by the two best performing funds in the sector – Troy Asset Management’s Trojan Income fund and the Majedie UK Income fund.

Article continues after advert

Mr Lang said the £232m fund was largely avoiding energy companies, miners, supermarkets and UK banks, as he felt many management teams at such businesses were “in denial” about the prospects for their companies in the near term.

Instead, Mr Lang said investments in what he deemed “boring and misunderstood” companies had helped the fund start 2015 positively.

He said one stock in particular that was misunderstood by Ardevora’s peers was British American Tobacco.

The stock saw a 12 per cent drop in just a couple of weeks at the back end of last year, falling from £37.90 to £33.50. It has since recovered to £37.50 at the time of writing.

Mr Lang holds 4.3 per cent of the fund in the tobacco company, believing analysts are biased against it.

“It is easy to believe the glory days are over,” he said.

“The percentage of smokers around the world continues to gently decline – but this is offset by a still growing global population.

“Analysts tend to worry about price wars and the damaging effect this has on industry profitability. The negative perception of tobacco is such that no one else wants to get involved.

“As a result, no new capital is coming into the industry. Increased regulation creates a lot of noise, but does not appear to make a lot of difference to the number of people smoking.”

Elsewhere, Mr Lang highlighted retailer Next as a business that has learned from its mistakes.

“The genesis of Next’s prudent approach to life goes back to the recession of 1990, when Next got overexcited, overstretched itself and almost went bust,” he said.

“Current management has never forgotten the dangers of being too aggressive, yet investors view Next as being run in the same risky way as your  average fashion-sensitive retailer.”

Currently making up 4.1 per cent of his income portfolio, Mr Lang said he had confidence that Next’s management would continue to be successful, and like British American Tobacco, will wrong-foot analysts.

“We expect analysts will continue to be caught out and investors to be well rewarded,” Mr Lang said.

He also praised Whitbread, the parent company of Costa Coffee and Premier Inn, for helping to boost his fund’s performance in 2015.

He claimed the predictability and simplicity of the business might have fooled analysts into thinking it was not worth backing.