MFM Slater Recovery performed below average in 2011, 2012 and 2013, making this year’s comeback a sharp return to form, although MFM Slater Growth has a more consistent track record. Both funds have benefitted from Slater’s stockpicking skills and good cash management to outperform all the UK smaller companies funds as well as IMA UK All Companies portfolios in 2014.
Data from FE Analytics shows that the £34m MFM Slater Recovery is up 10.37 per cent year to date and the £99m MFM Slater Growth 10.16 per cent as the FTSE All Share has struggled to returns of 2.66 per cent.
Performance of funds vs FTSE in 2014
Source: FE Analytics
The relative outperformance of the funds to the market began at the end of last summer, according to our data.
Relative performance of funds to FTSE since Sept 2011
Source: FE Analytics
The FTSE All Share is up just 6.4 per cent since then but Slater’s funds have soared away, with the growth funds up over 30 per cent and the income fund around 27 per cent.
One of the drivers behind this year’s strong performance of the two UK growth funds has been an excellent period for their largest holding Hutchison China Mediatech.
Slater likes to take punchy bets in his funds, and Hutchison China Mediatech makes up 8.8 per cent of the MFM Slater Growth fund and 8.97 per cent of the MFM Slater Recovery fund.
With the stock up 28.52 per cent year-to-date that means it is responsible for roughly 2.5 percentage points of the funds’ 2014 numbers.
Performance of stock vs FTSE in 2014
Source: FE Analytics
Slater’s portfolios have a strong tilt towards the small-cap area of the market, which means they should have more growth potential over the long run than many of the funds in the IMA UK All Companies sector.
However, he has significantly outperformed the smaller companies funds too this year, as the IMA UK Smaller Companies sector has made just 2.11 per cent.
The reason for these paltry returns is the sharp decline in smaller companies seen in March after a very strong run; Slater’s portfolios were sheltered from this by their stock picking.
Another major reason for his relative success was the high cash weighting he built up at the start of the year. In March he told FE Trustnet he had built up 15 per cent in cash on the Growth fund, fearing that valuations had some way to all.
It should be stressed that these aren’t smaller companies portfolios however, although they are highly differentiated from their peers.
Of the MFM Slater Growth fund’s top 10 holdings, three are listed on AIM, one on the FSE Small Cap and three on the FTSE 250, with one stock listed on the FTSE Techmark index and one – Walt Disney – in New York. It is a similar story in the MFM Slater Recovery portfolio.
Slater’s success is down to many of his big stock picks coming off. Ocean Wilson’s Holdings, a logistics company centred in Brazil, is up 14.39 per cent. It makes up 2.93 per cent of the MFM Slater Recovery fund.
This is good news for the Hansa Investment Trust, which has 34.3 per cent of its portfolio in the company.
Hansa was trading on a 26 per cent discount a short while ago although this has narrowed down to 20 per cent in the past few weeks.
The stock fell out of the FTSE last year thanks to a poor period of performance on the back of weakness in the Brazilian economy.
Restore, which features in the top 10 of both the Recovery and Growth funds, is up 17.8 per cent year-to-date. Entertainment One, also held in both portfolios, is up 18.25 per cent.
Performance of stocks vs index in 2014
Source: FE Analytics
The £45m MFM Slater Income fund is 10th in its sector this year with returns of 4.9 per cent to the sector average of 2.7 per cent. It was the eighth best performing fund in the sector last year.
There are more large caps in this portfolio, although some of the smaller companies from Slater’s other funds find their way in too. Galliford Try and Photo-Me rub shoulders with Glaxo, Imperial Tobacco and Standard Life.
MFM Slater Growth has ongoing charges of 0.81 per cent, MFM Slater Income 0.84 per cent and MFM Slater Recovery 1.58 per cent.
