Murray Asset Management – Investment Management Team
I was recently asked by a client to provide some comments in relation a recently launched Investment Trust because they were considering purchasing shares. The following is a summary of my reply and it provides a useful insight into how we review a fund.
The launch of the fund involved was incredibly popular and as a result it raised far more money than was expected (roughly 3x more). Generally, Murray Asset Management do not participate in fund launches which attract such a level of support because:-
• Too much hype – triumph of marketing
• Too much support from retail investors
• Tend to involve a ‘star’ fund manager with a long and successful track record based on a particular investment style
Retail investors may not fully appreciate the characteristics/risks of the fund they are supporting and may quickly become disillusioned if short-term performance is disappointing. Typically, if this leads to a lack of demand for the shares then the share price may move lower (and independently to the Net Asset Value performance). Investment styles may go in and out of favour – marketing typically focuses on a ‘here is what you could have won approach’ if you had only invested five years ago in the fund. However, you could not invest in the fund five years ago and so we treat any such performance claims with a healthy degree of cynicism.
However, the fund involved has a number of attractive features, but again some of these require further consideration:-
• A focus on global small and mid-sized companies (good) – but really not that small with the average investment being in a company with a market capitalization of approx. £7 billion
• A long term investment approach (good)
• A focus on quality (good) – particularly if economic headwinds are starting to build
• A concentrated portfolio (good – but adds to risk)
• A clearly defined investment strategy (good).
Typically, we favour managers who have the experience of being ‘through an investment cycle’ – i.e. through both good times and bad. There are other factors to take into account when reviewing a fund, for example costs and the investment opportunity relating to the asset class involved. Finally, given it is an investment trust the share price needs to be considered in relation to the Net Asset Value.
It would be wrong for me to provide details of the recommendation we made, but hopefully the comments are a useful insight into how we begin to construct a recommendation.