“I wouldn’t pigeonhole myself as a growth investor”

Perhaps not the ideal time, then, to take the helm of a portfolio. But former Standard Life Investments manager Ed Legget, now of Artemis, believes the UK market still offers rare opportunities for those who know it best.

“If you look at the UK equity market, it is small enough that, as an individual, you can have a pretty good understanding of the companies within it, certainly enough to take an informed investment view yourself. Whereas when you get into running global equities, the challenge is slightly different in that you are looking for other people who know in detail about the companies. Because the universe is so broad, you can’t have an in-depth knowledge of the whole universe you’re investing in,” he explains.

Amassing information on the domestic market began early on. Although he studied engineering at university, an internship at Schroders during his course allowed him to explore an alternative career. He recalls he was “attracted by the access you got as a fund manager to companies”.

[We] took the decision to evolve the portfolio through time, as opposed to making a large change on day one Ed Legget, Artemis

As a result, he joined Standard Life in 2002 as a graduate. “I took the fund management route and have been pursuing the challenge of understanding how companies’ business models work, how they make their money and the sustainability of that profitability through time ever since,” he says.

But after 13 years at the firm, including seven years running the Standard Life Investments UK Equity Unconstrained fund, Mr Legget decided to join Artemis in December 2015, and took on the Artemis UK Select fund from Tim Steer in January this year.

“It was a new challenge and the opportunity to be a partner and an owner of a business that is going through an interesting growth phase,” Mr Legget says of the move.

“When I joined SLI there were 400 people and when I left there were more than 2,000. Being part of that growth was exciting and made it a great place to work while I was there.

“[I have] the opportunity to follow that path again at Artemis, which is a smaller company but has some exciting opportunities both within the UK and in selling funds out of the UK.

“In coming to Artemis, I hope I can contribute to its success, whereas in a much larger company it becomes more difficult to influence strategy or [achieve] success as an individual just because of the scale [of the business],” he says.

Having taken over the fund at the start of January, the move has coincided with some volatile market conditions, which the manager describes as “interesting”.

But he adds: “Tim left me with a portfolio that had a number of investments in it with which I was very familiar – the overlap with my previous fund was more than 25 per cent in terms of net asset value.

“Tim is a sensible investor, focused on buying businesses with profits that are backed by cash, and I inherited a portfolio that is, on the whole, positioned in some sound investments.”

Of course, taking on a new fund means putting your own stamp on it but Mr Legget stresses any changes are an ongoing process.

“Myself, Paul [Casson] and Ambrose [Faulks] – who both worked with Tim – took the decision to evolve the portfolio through time, as opposed to making a large change on day one.”

He explains: “For me, fund management is a constantly evolving process, you’re never finished in terms of where the portfolio is. What might be your top 50 ideas one day are not necessarily going to be your top 50 ideas in a week’s time as newsflow, markets and share prices move. It’s a dynamic job, running a fund.

“Clearly there will be names in the portfolio that maybe Tim liked as investments but I have a different view, or that I like that Tim didn’t own. So to date, probably over the first three months, about 30 per cent of the fund has moved.”

The manager points out he tends to take an 18- to 24-month view of how he sees the portfolio evolving, in terms of sectors the team think are interesting and markets they believe are on the verge of turning – either positively or negatively.

“I have a view of how I expect the portfolio to evolve through time, but clearly you have newsflow that may change your views.

“To me, the investment challenge is a combination of taking a top-down macro view and bottom-up investment insights and combining the two to generate interesting investment observations and then incorporating those into a balanced portfolio.”

For Mr Legget, however, it is all about the performance of the products he runs and the track record which he has produced by applying his investment philosophy. This has been underlined by the change in the fund’s name from UK Growth to UK Select, which created continuity with the Artemis US and Global Select funds, but also better reflects Mr Legget’s approach.

“If I was asked to describe my investment style, I wouldn’t pigeonhole myself as a growth investor. I own growth stocks today and I have owned growth stocks in the past but, in general, I would put myself in a slightly more contrarian camp. That’s broadly because I’m a strong believer that your returns come from three pots: your income; underlying growth; and the cashflows of the business and the multiple the market is willing to pay for that,” he notes.

“The most exciting opportunities come when investors are concerned about the outlook for the profits and cashflow of the business and, as a result, the multiple is low at the same time. If you can see a scenario, be it cyclical or structural, that is going to change the outlook for the profits, then you can benefit from the turnaround in those profits as well as the multiple expansion at the same time.

“It’s combining those two that has certainly given some of the strongest returns for individual stocks across my career, and generally more of those opportunities come from the value contrarian area rather than growth stocks.”

And with uncertainty, and therefore opportunities, in the UK markets expected to continue, Mr Legget is not making plans to change his remit any time soon.

“Focus is key and doing one thing very well is in the best interests of the fund’s investors. I essentially ran one fund/strategy at SLI and I intend to run one fund/strategy at Artemis.”

He points out it is easy to get lost in the noise of what’s going on in the world, “but everything we own we have an investment thesis on, and we’re constantly asking ourselves whether that thesis still stands and if it is influenced by newsflow. If the answer [to the last question] is no and the share price has fallen a long way, then if we were happy to buy it at £1 and can now buy it at 80p, we should buy some more.”

In addition, he points out while investors can worry about what happens tomorrow versus today on an individual share price, “if the actual investment thesis you’re investing on was going to play out over 18 months then often that’s much more powerful in terms of the overall returns”.

As an example, in February the team added to financials during a sell-off in the sector, boosting positions in Barclays, Lloyds and Aviva, and initiating a new holding in Legal & General.

“[There is] uncertainty and increasingly you’re seeing investors trying to exploit their macro views by taking positions across different asset classes and trading big baskets of stocks to try and get exposure. [That] creates opportunities for an individual stockpicker. Often there are one or two things that happen to be in that basket that have nothing necessarily to do with that risk. So you can find opportunities to exploit from that broad based macro trading.”