While many managers preach about the benefits of having a low turnover, Dean (pictured), who manages the five crown-rated Cazenove UK Opportunities fund, says they are missing a trick by not cashing in on movements in the business cycle. "Turnover is never something I worry about," she said.
"I don’t think you ever have to worry about turnover when the fund is outperforming, especially as our costs are cheaper than the majority of other funds in the sector."
"The only time I think you can worry about turnover is if the strategy isn’t generating profit. If this is the case, I think it shows that a manager doesn’t know what they are doing."
"If you use it properly, you are actually moving the rising risk escalator in your favour."
"It means you are buying when prices are low and hopefully selling when prices are high. Doing that consistently should be pushing the risk indicator back in your clients' favour."
Dean seems to have perfected this pragmatic approach to investing in recent years, and has been rewarded with FE Alpha Manager status.
According to FE data, her £1bn Cazenove UK Opps fund is a top-quartile performer in the IMA UK All Companies sector over one, three, five and 10 years.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Dean has been particularly dominant over five years, boasting returns of 110.87 per cent – almost doubling those of the FTSE All Share. The fund has also been less volatile than the index over the period.
The fund has arguably been even more impressive from a consistency point of view, beating its benchmark in each of the last five calendar years.
Year-on-year performance of fund vs sector and index
| Name | 2012 returns (%) | 2011 returns (%) | 2010 returns (%) | 2009 returns (%) | 2008 returns (%) |
|---|---|---|---|---|---|
| Cazenove - UK Opportunities | 33.3 | 1.3 | 20.09 | 34.49 | -23.29 |
| IMA UK All Companies |
15.05 | -7.04 | 17.53 | 30.4 | -31.96 |
| FTSE All Share | 12.3 | -3.46 | 14.51 | 30.12 | -29.93 |
Source: FE Analytics
Cazenove UK Opps targets 3 per cent of outperformance above the FTSE All Share each year.
Most managers fall into one of two categories – defensive or cyclical – but Dean says she has the flexibility to be either, depending on her outlook.
She adds that the fund’s strong performance in 2012 came from upping her exposure to high-Beta holdings.
"Last year there was no earnings growth, but that didn’t matter because markets did climb the wall of worry," she explained.
"We anticipated this because of the amount of monetary stimulus that was implemented, and the fund’s top performers were mostly high-Beta plays or cyclicals."
The manager says she does not understand why some fund managers hold on to a stock, even if they believe it could fall in the short-term.
"As always, last year the real returns came from what we didn’t own, which we are always keeping an eye on," she said.
"If you are holding something that you feel might fall by 6 per cent – why own it? Managers might say they want to hold it for safety, but security isn’t a view – you’ve got to think about it."
Dean says her mantra is to "own companies and not buy the index", which she says is typified by her attitude to HSBC – her biggest underweight position.
"If I wanted to own HSBC and I thought it was capable of doubling its returns, I would have to tie up a lot of capital if I wanted to see any real difference to the fund," she said.
"I just think there is better relative value elsewhere."
The stellar performance of Cazenove UK Opportunities and the growing reputation of Dean have resulted in mass inflows in recent months. According to FE data, the fund has grown form £200m to £1bn since February last year.
Dean says she is keeping an eye on the situation, but insists it has not affected her investment approach yet.
"The inflows into the fund haven’t really changed our process," she explained.
"We did some work a while ago looking at the average daily liquidity at the smaller end of the portfolio – that is to say companies in the FTSE 250."
"That knowledge is very useful and we may start thinking about picking up stocks slightly earlier than we usually would."
"But really, we have kept the approach exactly the same, which is all about paying the right price. You should never be chasing price because you give away return. If you feel a price is high, then look for something similar."
"If you can’t, that usually means the valuations of the stocks have gone too far. It’s all about looking at where you are in the market cycle."
Cazenove UK Opportunities requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 1.58 per cent.
Dean’s views on turnover are in contrast to those of FE Alpha Manager David Coombs, who says investors need to be more patient when judging a fund’s track record.
Among the biggest proponents of low turnover are FE Alpha Managers Nick Train and Neil Woodford, as well as investment trust specialist James Anderson.