Jack Barrat, who jointly runs the £800m GLG UK Undervalued Assets fund, is buying oil companies and shunning traditional retailers.
He is also the sole manager on the £72m GLG Absolute Value fund, which launched in July and takes “short” positions on UK shares, rewarding him if the share price falls.
Mr Barrat said the investment process for the Undervalued Assets fund means finding shares at cheaper prices than justified but in the course of doing so he finds companies which have share prices too expensive based on the fundamentals.
Before the launch of his new fund Mr Barrat would avoid those shares but he said he can now profit from the eventual decline in their share prices.
The GLG Undervalued Assets fund has returned 31 per cent over the past year to 9 November, compared with 17 per cent for the average fund in the IA UK All Companies sector in the same time period.
Mr Barrat said the decision to buy some UK domestic companies was based on the fact they were priced for “disaster” in the aftermath of the EU referendum and helped to deliver outperformance.
Since then, he has started to invest in oil company shares, saying the oil decline in the oil price has forced some of the larger companies to cut their capital expenditure.
He is invested in Shell shares but is more excited about an Aim-listed company called Diversified Oil and Gas.
The fund manager said this company invests in traditional oil assets rather than fracking companies.
He said: “The fracking companies are what everyone is excited about. But what is less known is that there is usually a certain amount of oil on those sites that can be extracted the traditional way.
"The fracking companies are not interested in those oil rights. So Diversified Oil and Gas buys those. So it is buying assets that are largely proven, and is cash generative right now. But because it is not fracking, and because it is on Aim, it is neglected by the wider market.”
The company came to market via an IPO at the start of 2017.
With regards to the shares he has been shorting, Mr Barrat said companies with a lot of debt or long-term liabilities on the balance sheet are among the “red lights” that flash up when he wants to short-sell a share.
Retail companies with lots of high street stores on long leases are examples of businesses with long-term liabilities.
That, combined with the rise of online only retailers who don’t have such liabilities, makes Barrat wary of the retail sector, and taking short positions in some companies in the sector.
Darius McDermott, managing director of Chelsea Financial Services, said Jack Barrat is a fund manager who has worked on high performing funds for several years, meaning the launch of his Absolute Value fund is “an interesting addition to the market.”
david.thorpe@ft.com
