The manager of the £50m MFM Slater Income, £116m MFM Slater Growth and £33m MFM Slater Recovery funds says that over the past year he has refused to buy stocks that may take a knock in the run-up to or aftermath of the two events.“For some time now – about a year – we have avoided politically sensitive stocks. When elections get close there are always some sectors that become political footballs and we don’t really want to be in them unless valuations are hugely compelling,” Slater said.
“For example, we don’t have an energy holding in the funds,” he added.
Energy companies have been at the forefront of political debate over the past year or so, following Labour leader Ed Miliband’s plans to freeze prices and the impact an independent Scotland would have on the sector.
Despite Slater’s wariness on these areas of the market, he says he doesn’t invest fully on a macro view.
“There is nothing we own where our bullishness is based on a macro view such as interest rates. Our chances of being right on the level of sterling or interest rates is more remote than our chances of assessing a business.”
However, Slater has recently sold out of the bookmaker William Hill and Scottish-based Aberdeen Asset Management.
William Hill has been hit by both political parties as Miliband has promised a “crack-down on the betting shop epidemic” while fixed-odds machines were targeted in George Osborne’s most recent Budget.
Our data shows that both stocks have performed poorly this year.
Performance of stocks vs index in 2014
Source: FE Analytics
“When the whole independence campaign started, the feeling was that the union campaign was more likely to win, but I thought the market was not giving enough credit to the possibility,” Slater said.
“It was effectively giving a zero chance of independence for Scotland. That was ridiculous and the market is now starting to take it more seriously.”
“However, from a stock market perspective it is positive that sterling is down a lot and it is also positive that in the event independence is granted – and a yes-vote wins – rates will stay low for longer.”
“If there is independence then it is even more likely to be true because it will take a very, very long time to figure out how it is going to work. There will be a lot of uncertainty and it will affect many businesses, particularly some very large financial businesses.”
“The central bank would have to bear this in mind and the effect of volatility on confidence in the event the nationalists win.”
The MFM Slater Recovery and MFM Slater Growth funds are the best and second-best performing funds in the IMA UK All Companies sector in 2014, while MFM Slater Income is the IMA UK Equity Income sector’s third best performer.
Slater also has a strong record in the UK equity space over the long-term, outperforming his peer group composite by more than 50 percentage points over the past 10 years.
Performance of manager and peers over 10yrs
Source: FE Analytics
The income fund is the newest in the Slater stable as it has a track record just shy of three years.
According to FE Analytics, the fund has returned 70.04 per cent since its launch in September 2011 compared with an average return in the IMA UK Equity Income sector of 57.01 per cent.
The FTSE All Share gained 54.01 per cent over the same period.
Performance of fund, sector and index since Sep 2011
Source: FE Analytics
The fund’s largest sector bets are financial services, leisure and real estate, although at just 12.75 per cent, 10.66 per cent and 10.51 per cent, it is quite heavily diversified across different sectors.
It has a large bias to mid cap names such as Galliford Try, Marston’s and Costain, although it has some large cap exposure via GlaxoSmithKline and Legal and General.
He says in general it has been harder to find investment ideas as markets have risen, but he says he is still bullish.
“Three years ago you could get yields of 6 or 7 per cent routinely; now that is much more difficult. However, I would argue the market was much too low then.”
“I’m not hugely alarmed at the level of the market and we can still find stocks after taking profits. In general I’m still bullish, but I would like valuations to lower because it would make my job a lot easier.”
However, the manager says he wouldn’t be surprised to see a pick-up in volatility over the next 12 months.
MFM Slater Income’s clean share class has an ongoing charges figure (OCF) of 0.84 per cent and is currently yielding 4.08 per cent.
