Holly Black: Welcome to the Morningstar series, 3 Stock Picks. I’m Holly Black. With me is John Chatfeild-Roberts. He is Manager of the Jupiter Merlin Growth Portfolio. Hello.
John Chatfeild-Roberts: Hello, Holly.
Black: So, you haven’t got three stocks for us because you don’t invest in stocks.
Black: You invest in funds.
Black: So, we’ve got three funds to talk about. Where would you like to start?
Chatfeild-Roberts: Well, I thought the first one we would talk about would be Evenlode Income. That is a fund run by a man called Hugh Yarrow and his co-manager Ben Peters. It is a UK income fund with a yield of 3.2%. It’s got around about 40, 45 stocks. It has basically a growth bias and that means that they’re looking for companies which are going to keep growing year after year after year. That tends to mean that they can be a little bit more expensive than average. But over time, the compounding effect should win out. It was launched in 2009. We invested in it, gosh, five years ago or something like that when it was £50 million fund. It’s well over £2 billion in size now. It’s done very well. It made over 20% last year. It’s probably going to have a quieter time in the next 12 months. But for the long term, I would say that’s a pretty good basis for the portfolio.
Black: So, obviously, that fund had a five-year record by the time you invested, but that is a proper boutique business with a handful of employees. Is that something you have to factor in when you’re choosing a fund?
Chatfeild-Roberts: Absolutely, definitely. I mean, you need to make sure that the fund manager has got all the sort of backup, they need the sort of corporate – how can I put it – the corporate structure that is going to last. And quite frankly, if you’ve got that sort of structure, you quite often want slightly younger managers. So, it helps – I mean, I think we’ve got a perhaps 20, 30-year run in this fund. It happens to be run out of Oxfordshire, which is quite a nice little point, but I don’t think Oxfordshire’s necessarily the place you need to look for funds.
Black: Okay. What’s fund number two?
Chatfeild-Roberts: Well, fund number two is different. It’s closer to home It’s a Jupiter fund. So, it’s Jupiter UK Special Situations. It’s run by a chap called Ben Whitmore and his sidekick is called Dermot Murphy. Ben is very definitely a value fund manager. So, he is looking for companies that are out of favor whose share price has fallen because they’re out of favor. But there’s a saying that in the market, the market in the short term is a voting machine and in the long term is a weighing machine. And he is trying to find those shares, which are going to eventually recover when they are far too cheap.
Black: But value funds have had a difficult time in recent years. Has that ever, sort of, wavered your conviction in that sort of fund?
Chatfeild-Roberts: Well, I mean, it definitely tests you from time to time. Ben is an absolute class act. He’s a very cerebral guy. And if you look at the track record, although value funds per se have done relatively badly, he has managed to hang on in there even through the really bad time. So, he is a very good fund manager. And referring to a previous interview when I said it was all about people, you know, Ben is really one of the best.
Black: And what’s our final fund?
Chatfeild-Roberts: Well, the final fund is a global fund. It’s Fundsmith Equity run by a man called Terry Smith who has had a long, long career in the City. It’s got a relatively limited number of stocks, and it has relatively low portfolio turnover. And again, even laid like Hugh Yarrow, he is looking for companies that can compound their earnings over time. And although he’s concerned about the price he’s going to pay, he’s not a value manager. And so, if value funds do particularly well, you might expect his fund to do less well in the short term.
Black: That’s another fund that’s grown massively. Do you get concerned about funds getting too big?
Chatfeild-Roberts: It all depends what they’re invested in. So, if you’ve got a large fund that is investing in very large companies, you shouldn’t I don’t think be particularly concerned. But if you’ve got a very large fund that is investing in very small, illiquid situations, and I’m afraid Woodford would be one of those situations, but also, you look at perhaps property funds, you’ve got to look at the underlying liquidity and make a judgment as to whether that is an appropriate size of investment in your portfolio.
Black: And one thing that I think is important to a lot of retail investors is fees. We want to keep our costs as low as low as possible. Is that important to you as a manager?
Chatfeild-Roberts: It’s important, but it’s not the most important thing. So, obviously, we want to pay the minimum we can in fees, but we recognise that the best people are going to be able to charge a premium. And we don’t want to cut our nose off to spite our face. We could always go down the route of buying lots and lots of index trackers. But I just do not think that we would get the outperformance. I mean, looking at our record, it is the choice of funds that we make that generates our superior returns.
Black: Well, thank you so much for your time.
Chatfeild-Roberts: Thank you, Holly.
Black: And thank you for joining us.
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