Hot Stock Picks From Top Fund Managers

Published in Investing on 16 September 2011

Introducing a new series spotlighting some of the best ideas of pro stockpickers.

If you're a regular reader of The Motley Fool, you'll know we have a generally low opinion of actively-managed funds.

You'll also know the main reason why: a noxious combination of 'closet index tracking' and high charges. Too many actively managed funds produce returns that are no better -- and very often worse -- than investors can get from buying a low-cost tracker fund.

This is not to say that there aren't some talented stockpickers out there. There are.

In a new monthly series, I'm going to be spotlighting some of the best ideas from a small pool of what I consider to be the top professional stockpickers investing in the UK market.

Ace attributes

My select list of fund managers is unashamedly partial. It reflects my own investment philosophy and approach, which I know is shared by many other Fools who choose to invest in individual companies.

The list consists of five managers from 'boutique' investment firms, who are perhaps not too well known to the average retail fund investor; plus three independent-minded managers from more mainstream fund groups.

In addition to the obvious qualification of having a history of generating excellent returns for their clients, the managers tend to have the following attributes:

  • they take a fundamentals-based, 'bottom-up' stockpicking approach;

  • they run concentrated, high-conviction portfolios containing only their best ideas;

  • they generally invest on a long-term view, with low portfolio 'churn'; and

  • they 'eat their own cooking' – in other words, have their own money invested in their own funds.

Our 'expert eight'

Who are the chosen few? Here's some background on the five independent owner-managers:

1. John McClure (Unicorn Asset Management)

McClure has specialised in investing in UK smaller companies for over 20 years. He co-founded Unicorn in 2000 via a management buyout.

McClure runs several high-conviction funds. Abcam (LSE: ABC), an antibodies and reagents manufacturer and supplier, is a good example of a McClure stock, and of his investment approach.

Abcam started off as an early-stage business in Unicorn's AIM VCT fund. It was picked up successively by the UK Smaller Companies and Freespirit funds, before finally making it into the Outstanding British Companies fund, alongside such large-cap luminaries as Rolls-Royce (LSE: RR).

2. Charles Montanaro (Montanaro Asset Management)

This firm was established in 1991 and invests in UK and Continental European smaller companies.

The Montanaro funds of interest to us are the UK Focus unit trust and Montanaro UK Smaller Companies (LSE: MTU).

While Montanaro concentrates on small caps, the portfolios can end up holding some mid-cap companies as a result of good growth. For example, hi-tech tools and systems firm Oxford Instruments (LSE: OXIG) has been promoted to the FTSE 250 this month.

3. Mark Sheppard (Midas Investment Management)

The Manchester & London Investment Trust (LSE: MNL), which Sheppard has managed for 10 years, is not only Midas's flagship fund, but the investment vehicle for the Sheppard family wealth.

Sheppard's core approach is to buy growth at reasonable value, but he also has an eye for event-driven situations.

He favours mainly blue-chip stocks, although the trust's long-standing largest holding (held since 1997) is personal goods group PZ Cussons (LSE: PZC), which is in the FTSE 250.

4. Mark Slater (Slater Investments)

The son of small-cap guru Jim Slater (author of The Zulu Principle and populariser of the PEG ratio). Slater Jnr co-founded Slater Investments in 1994, and has become a notable stockpicker in his own right.

Maintaining the family tradition, the PEG ratio is his core valuation tool for both his Slater Growth and Slater Recovery funds, although the latter, as the name suggests, also includes special situations.

The two funds have many holdings in common, such as AIM-listed pharmaceuticals and consumer healthcare firm Hutchison China Meditech (LSE: HCM), which is the largest holding in both funds. While Slater's bias is towards smaller companies, he's not averse to holding some blue chips, such as British American Tobacco (LSE: BATS).

5. Nick Train (Lindsell Train)

Nick Train co-founded the firm in 2000 with Michael Lindsell, the pair having become disenchanted with the confines of the major institutions that employed them in the 1990s.

Train focuses on undervalued, durable and cash generative businesses. He operates mainly at the larger end of the market cap scale, favouring companies such as Diageo (LSE: DGE) and Unilever (LSE: ULVR).

A low turnover of holdings is a feature of the Lindsell Train UK Equity fund, and Finsbury Growth & Income (LSE: FGT) that Train manages along similar lines.

Finally, turning to the three managers from more mainstream fund groups who make up our Expert Eight, we have: 

6. Richard Buxton (Schroder UK Alpha Plus)

A 25-year industry veteran who is a blue-chip stockpicker.

7. Richard Penny (L&G UK Alpha)

Penny employs a two-pronged 'strong growth' and 'deep value' strategy with a heavy smaller company bias.

8. Paul Marriage (Cazenove UK Smaller Companies)

An out-and-out small-cap stockpicker.

Ready for kick off

I fully anticipate our pool of top fund managers to generate lots of exciting stock ideas in the months ahead, right across the market capitalisation scale.

So, whether you're interested in blue chips, mid-caps or smaller companies, there should be plenty to get your teeth into.

The series will kick off next week, with some big blue-chip ideas.

More on the markets:

> G A Chester owns shares in Manchester & London Investment Trust. The Motley Fool owns shares in Unilever.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

Gibbox 16 Sep 2011 , 9:39am

Excellent idea - will read with interest

Phalaris 16 Sep 2011 , 1:29pm

This is intended to be a parody of active management, yes?

wallaceinvestor 16 Sep 2011 , 4:55pm

I look forward to keeping up to date using this bao and tips.

MunroMan 16 Sep 2011 , 5:59pm

The divergence between this amateur approach and what professionals do is

http://www.assetmanagement-om.com/pra-training/

Is getting larger and larger.

jaizan 16 Sep 2011 , 9:50pm

How about an article showing how these fund managers have performed over a decade, or preferably more?

If they have outperformed the benchmark index by some margin, I'm interested.

ANuvver 17 Sep 2011 , 3:52am

LordEssex:

Thanks for that link - been laughing all day.

My own professional interaction with everything from time and motion, TQM, ISO-compliance, process reengineering, value-add, change management and the like has bred a scepticism bordering on contempt.

But accreditation and training is a great business. I have shares in UBM!

MunroMan 17 Sep 2011 , 4:34pm

Lord kelvin said if you can't measure something you can't improve it.

masudbutt 18 Sep 2011 , 7:02pm

I like it-what the top managers are investing in,will read & follow, Thanks.

jaizan 18 Sep 2011 , 11:56pm

Where's the evidence to say these people are top managers?

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