Mundy: How to master a contrarian approach
The Investec manager says the key to making money is capitalising on other people’s mistakes.
contrarian stock-picking approach has seen him surge to the top of performance tables since joining Investec Asset Management back in August 2000.
The flagship Investec Special Situations
and Cautious Managed
portfolios are top-decile in their respective sectors over the last decade, while Temple Bar
is one of the most consistent UK equity income trusts in the AIC universe.
The manager’s style is not for the faint-hearted however; Mundy (pictured)
targets unloved, out of favour companies that are largely ignored by the wider market.
"The strategy is premised on the fact that portfolio management is an extremely difficult skill," he explained in an earlier interview with FE Trustnet
"You’ve got a huge number of people trying to do exactly the same thing, which is tough."
"In my opinion, the markets are so efficient these days that there’s next to no intellectual or information advantage."
"The key to making money is capitalising on other people’s mistakes. Investors have a tendency to sell just because something is going down, which makes the price depreciate even further. If they’re selling for a sensible reason, then fair enough; however, very often it’s for a transient reason, which is the area we target."
Mundy urges investors to be patient with his investment approach, since his stocks are prone to further share price falls after he has bought them.
"It’s a very patient approach – we obviously try and buy at the bottom, but sometimes you have to take a bit of a hit early on," he explained.
He pointed to one of his favourite stocks – Signet Jewelers – as a good example.
"We bought it back in 2006 and went through a period of hell initially [due to heavy losses in 2008]. However, it has now made back these losses and we think it has still got a long way to go before it reaches its peak."
"Typically at the point of purchase the stocks we hold hit their peak seven years ago and the average holding period is then five years."
"You’ve got to be patient and when appropriate buy in the dips. One of the most important things is not selling too early – you’ve got to forget about what you bought a stock for and judge whether or not the company is fair value at that given point."
He joked: "Luckily for me I haven’t got the best memory, so I’ve gotten quite good at it."
Performance of fund vs sector and benchmark over 10-yrs
Source: FE Analytics
This approach has paid off handsomely for Mundy in the last decade. The Special Situations
portfolio has returned 94.16 per cent over the period, which is almost twice as much as the average UK All Companies
Despite the fund’s focus on unloved companies, it is marginally less volatile than both its sector and benchmark over 10 years, and outperformed in the down markets of 2002, 2008 and 2011.
"In the last five years we’ve had no company defaults at all," said Mundy. "We had a few in the five years previous. We spend a lot more time looking at company balance sheets these days, which I think has helped."
The manager is primarily a bottom-up stock-picker and he believes there is particular value in the building merchants sector at present. The Special Situations portfolio holds Travis Perkins and Grafton in its top-10 and Kingspan and SIG in its top-20.
In the £2.1bn Investec Cautious Managed portfolio, Mundy is overweight Japanese equities – again, an area that he thinks is underestimated by the wider market. He has just under 10 per cent invested in Japan, compared with 1.2 per cent from the average Mixed Investment 20-60% Shares