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10 May 2016

The value exception that proves the rule

Henry Dixon, co-manager of Elite Rated Man GLG Undervalued Assets

We've talked a lot about 'value' funds in the past couple of weeks, looking at this style of investment (which is akin to renovating a cheap rundown house: you are backing a company that has been in a bad way but still has potential) compared to that of 'growth'.

As our May investment feature 'Should you invest in value or growth stocks?' points out, value has outperformed growth over the past 15 years, but over the past two years, the trend has reversed.

As with all things, however, there are exceptions that prove the rule. One such exception is Elite Rated Man GLG Undervalued Assets.

Co-manager Henry Dixon, started running this fund in November 2013, having just joined the company from Matterley, where he had ran an almost identical fund for a number of years. Since November 2013, he has returned more than double his peer group sector average*: 13.8% compared with 5.83%. Not bad for an out-of-favour style. In the same time period the FTSE All Share has returned just 2.78%.

Henry looks for cash generative companies whose shares are cheaper than the wider market. He currently** has around 50% of the fund invested in the UK's largest companies, 30% in medium sized companies, 17% in smaller companies and 7% invested in Europe.

2016 has been tricky. Some of the more indebted areas of the market – areas that Henry avoids – have performed better. He is a contrarian, never afraid of looking at distressed areas, but not if they have significant debt in their capital structure. In Henry's opinion, such capital structures mean these companies are unlikely to thrive in the long-run.

When it comes to contrarian investments, two examples in the fund have had polar-opposite performance this year. One of the most disappointing companies for Henry has been Royal Bank of Scotland, but he still believes it can do well for the fund in future. He likes how it has de-geared itself significantly: the loan book has shrunk dramatically from £2.5 trillion in 2007 to £400 million now. According to Henry, although the bank's share price fell drastically in March, just a slight upturn in market outlook could vastly increase the share price.

In contrast, Centamin, the Egyptian gold miner, has benefited from the rebound in the price of the precious metal and, with positive earnings momentum, is the best performing holding this year.

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With all eyes on the EU referendum next month, Henry is looking to take advantage of the weak pound. He is looking to isolate those shares that have already been or may well be caught up in a Brexit demise, but which have the majority of their revenue in global currencies.

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*Source: FE Analytics, total returns from 15th November 2013 to 10th May 2016 **As at 19th April 2016


Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Henry's views are his own and do not constitute financial advice.


©2016 FundCalibre Ltd. All Rights Reserved. The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete, or accurate. FundCalibre, shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use.