My fund bought Rolls Royce shares at 70p and last month they hit £14: Here’s where you should invest next…
Each month, we assign a senior fund or investment manager to take part. I am a fund manager series to learn how they manage their own money.
We want to know where they will invest next year and the next 10 years, and what pitfalls they should avoid. We also quiz them on Nvidia, gold and bitcoin, as well as their biggest investment mistakes.
This month we spoke to Mark Costar, senior fund manager at JOHCM UK Growth Strategy. Mark has managed the fund since its founding in 2001.
Prior to joining JOHCM, Mark spent nine years at Clerical Medical Investment Group, where he was responsible for the management of approximately £2bn.
The £156 million fund invests mostly in the UK. Its five largest holdings account for more than 20 percent of its portfolio.
The fund’s investment objective is to achieve long-term capital growth that exceeds the FTSE All Share Total Return Index.
In the hot seat: JOHCM UK Growth Strategy senior fund manager Mark Costar
It invests in a wide range of companies from FTSE 100 to FTSE 100. Index containing the 100 largest companies traded on the London Stock Exchange smaller, less liquid firms.
Its top 10 holdings include BP, HSBC, AstraZeneca, Kooth and Funding Circle.
If you could invest in one company for the next 10 years, what would it be?
SigmaRoc is a high-quality compounder with excellent management, strong barriers to entry, pricing power and long-term structural growth.
The balance sheet is in good shape and it is trading at an extremely attractive valuation.
One of its closest peers was recently acquired for nearly 3x where Sigma is currently trading.
So what happens for the next 12 months?
Gooch & Housego is the world leader in precision optical components.
The company has exciting growth opportunities ahead of it, including advanced semiconductors, anti-drone warfare, and space and undersea data cables.
The company recently announced a record order book and we expect even stronger progress next year.
What is your biggest investment so far?
We have been in the markets for over 30 years and have been lucky to identify around 10-20 packers in that time.
The latest was Rolls Royce, which made this return last month when it reached £14 last month from our best entry price of 70p.
So what’s the biggest investment mistake you’ve ever made?
Unfortunately, 30 years in the market also allows you to make a lot of mistakes.
There is a depressingly long list to choose from, but one that stands out from early in my career is the Versailles Group, which appeared to be performing at a high level in 1999, but then the wheels quickly came off and went bankrupt.
It turned out that this was a huge fraud and the reports and accounts were completely fictional. It was a painful lesson and one from which we learned a lot.
Big fan: AstraZeneca has achieved above-average sales growth and shareholder returns, and there’s no indication this can’t continue
Should everyone add gold to their portfolio?
Centuries of history point to gold as a valuable diversifier, especially in times of geopolitical uncertainty.
We certainly won’t debate the weight of this evidence, and it points to a prudent allocation to gold in any sensible portfolio.
What about bitcoin or other cryptocurrencies?
We have a hard time seeing where Bitcoin’s true value lies. As a result, it or other cryptocurrencies can only be considered a vehicle for speculation.
We are investors, not speculators, so we do not have a strong view on them.
Which sector excites you the most?
We think there are tremendous opportunities in areas where the market perceives an AI threat but where there is increasing credible evidence to the contrary.
Good examples would be advertising agencies, where AI is actually increasing rather than reducing the complexity and fragmentation of the marketing ecosystem, or education, where AI is shortening the half-life of skills but resulting in increased demand for training, support and accreditation.
Which industry would you avoid?
Public services generally lack growth and many are overearned and underinvested. The political risk posed by the new Burnham administration in the UK is also increasing.
Is there a reason why British is good value or cheap?
Investors cannot see beyond the toxic political rhetoric in the UK; This colors their judgment, and as a result they often underestimate both the structural attractiveness and the level of return on offer.
The UK ranks third in the world for artificial intelligence; It has an incredibly vibrant start-up ecosystem, world-class biotech and science talent, and underrated strengths in the creative industries and education.
There’s a reason companies take over UK companies; they are often of high quality and trade at the wrong price.
Big return: Costar’s fund invested in Rolls Royce when the share price was 70p. It reached £14 last month
Astrazeneca is one of your greatest assets. From where?
Pascal Soriot is the best CEO in the world. FTSE100and transformed the company’s fortunes over the last decade.
The company is focused on therapeutic categories where it has a clear competitive advantage in areas of unmet medical need and has industry-leading R&D efficiency.
This has translated to well above average sales growth and shareholder returns, and there is no indication that this cannot continue.
You also have large holdings in HSBC and Barclays; Do their share prices need to move further?
Both have performed exceptionally well over the last few years and we have made some profits as a result.
Still, prospects look strong and valuations are still quite reasonable.
Further down the size spectrum, we also have exciting, faster-growing and cheaper financial names like Vanquis and Funding Circle.
Should investors seek rebalancing away from the US?
The US has begun to dominate global indices, and with its massive tech bias, investors may inadvertently find themselves overweight this region, which is neither prudent nor advisable.
As we mentioned before, the UK and selective Asian markets that are not dominated by technology look like interesting places to diversify some of this.
Should passive investors be worried?
Passive has been a very useful channel for investors and in many ways has helped democratize the investment process, which can only be a good thing.
Too much passive and systematic money also has consequences, and we see this today in markets through over-concentration, high correlations, and discontinuities in the price formation ecosystem.
Active can take advantage of these inefficiencies and generate strong returns while doing so. As a result, a gradual rebalancing towards assets is likely to occur, and there are signs that this process has already begun.
Why should investors choose your fund over a passive index fund?
The fund has a very strong 25-year history of returns and has consistently outperformed the index across many market cycles and conditions.
This is a disciplined process that leads to a portfolio of stocks that are cheaper than the market on average, have stronger balance sheets than the market, yet grow much faster than the market. We claim that this is a very interesting profile.
Tomorrow, at the age of 25, you will inherit £100,000 with no assets. How would you invest?
Long-term investing in stocks is a proven way to compound wealth; Therefore, with a lifetime ahead of them, a person of this age should have a high component of being able to afford the savings allocated here.
A low-cost index tracker combined with proven, active and differentiated funds will certainly help achieve this goal.
DIY INVESTMENT PLATFORMS
A.J. Bell
A.J. Bell
Easy investment and ready portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund trading and investment ideas
interactive investor
interactive investor
Fixed fee investment from £4.99 per month
free trade
free trade
Investing in Isa is now free on the basic plan
Trade 212
Trade 212
Free share sales and no account fees
Affiliate links: If you publish a product, This is Money may earn a commission. These deals are chosen by our editorial team because we think they’re worth highlighting. This does not affect our editorial independence.
