This £1.1bn fund was launched in November 1980 and aims to provide investors with capital appreciation by investing in a diversified portfolio of US securities and to deliver returns significantly ahead of its benchmark over the course of the market cycle. The portfolio has been managed by Angel Agudo since December 2012, and is a new entrant in this year’s Investment Adviser 100 Club in the North American Equity sector.
The process and investment philosophy have remained unchanged during Mr Agudo’s tenure, with the manager explaining: “I believe the stockmarket is inefficient at pricing companies that have gone through a troubled period and are consequently unloved and out of favour. It is often only when an improvement in a firm’s trading is visible that the market moves to reprice future growth prospects.
“I therefore favour firms that have gone through a period of underperformance, where little value is ascribed to their recovery potential, and there is strong relative upside/downside performance potential. The intention is to deliver outperformance across different market environments by building a portfolio of stocks that are in different stages of their recovery process.”
While the manager acknowledges he is cognisant of macro developments and considers them to be important, the positioning of the portfolio in terms of sector allocation is purely based on bottom-up stockpicking. “Stock selection is the key driver of both risk and return combined with a strong risk management discipline in which position sizing is adjusted according to conviction, volatility and correlation with other portfolio holdings. The fund takes a high-conviction approach that results in a high level of active money,” he adds.
The fund sits at a risk-reward level of five out of seven, while the W-accumulation share class has an ongoing charges figure of 0.95 per cent, its key investor information document shows.
Since Mr Agudo took control of the fund in 2012 it has delivered 122.5 per cent in sterling terms to September 23 2016, data from FE Analytics shows. This compares favourably with the S&P 500 index’s gain of 99.8 per cent and the IA North America sector’s average return of 87.4 per cent in the same period. He notes the performance was driven by strong stock selection in the healthcare, IT and industrials, and consumer staples sectors. “The overweight position in drug sales and marketing firm Forest Laboratories was testament to this strong stock selection,” he says.
“Cost reductions, coupled with strong growth in newly launched products, helped catalyse share price performance. The stock surged further following an acquisition announcement from Actavis. I believed Forest Laboratories had reached its maximum upside and took profits.”
Within IT the manager highlights gaming firms Electronic Arts and Activision Blizzard as the biggest contributors to returns as both companies benefited from higher profit margins due to consumers shifting to digital downloads rather than purchasing video games from third-party retailers.
In recent months, Mr Agudo has reduced the fund’s overweight in the healthcare sector and increased the overweight in IT, initiating a new position in programmable logic solutions provider Xilinx, which boasts a strong balance sheet and is a potential acquisition target.
He adds: “It is worth mentioning the positioning in the energy sector. I believe that valuations have reached significant lows and we could soon see an inflection point. Although I am still underweight in the sector, I have increased the exposure by initiating a position in [oil and gas exploration and production firm] Apache Corporation. Further normalisation of oil prices could open more opportunities in the sector.”
On the flip side, the manager acknowledges not having major exposure to high-valuation internet stocks, such as Facebook, Amazon, Netflix and Google, especially in 2015, was a detractor from performance. “Valuation multiples of these ‘in vogue’ companies have increased significantly this year, and any potential derating or change in sentiment could translate into significant downside for these stocks. I do not follow the crowd and tend to avoid stocks with short-term positive momentum,” he explains.
