George Godber and Georgina Hamilton, who run the £285m Polar UK Value Opportunities fund, have turned to manufacturers for value as the opportunity set in the UK market “narrows.”
The managers made their initial reputation at Miton, running a fund that grew to just shy of £900m, before departing to Polar towards the end of last year.
The new fund has assets of £300m to date.
The managers believe the strategy they deploy would cease to be effective in a fund of £1.2bn in size, so won’t allow their fund to grow beyond that level.
Mr Godber said that a piece of research he had seen broke UK GDP down by region and the “West Midlands is absolutely booming. We are not particularly bullish on the UK economy, not bullish at all. But the manufacturers we see, they have full order books.”
He added that while the decline in the value of sterling since the European Union referendum vote has undoubtedly helped the manufacturers “that’s not enough for us on its own. We can’t predict how currencies move. The investment case is the improvement in Eurozone growth, you need that.
"You have to think about Eurozone companies that have dealt with the global financial crisis, then the Eurozone crisis (of 2011).
"Now eight or 10 years later, they are going to need to spend money replacing their plant, and at the same time demand for their products has picked up, so there is a double boost for companies selling to them and niche manufacturers are particularly appealing as they tend to have a very strong share of the market in which they operate.”
Mr Godber added the UK manufacturers who have survived during tough years since the financial crisis have proven their expertise and resilience.
Among the companies he is investing in to capture this theme are Coates, which manufactures thread used in clothing.
But Ms Hamilton said: “There are two things we look at, first is valuation, and the UK earners are cheap by that measure. But the second one is visibility of earnings. Can we see how the earnings will grow? With the levels of political uncertainty we have in the UK mean that visibility is not there.”
The UK-focused companies they have been buying tend to be those that will “Do well if the UK does badly.”
Ms Hamilton cited the example of On The Beach, a company in which the fund recently invested.
She said: “They do cheap holidays, people who want to save money use them, and that suits the economic climate. Holidays are one of the last things people will cut back on.”
The second stock she mentioned as fitting this description is GoCompare.com Group PLC, which is a price comparison website for insurance products.
Ms Hamilton said given the likelihood of more straitened economic times, consumers are more likely to want to switch insurance providers, boosting the growth prospects for companies such as Go Compare.