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Few and far between… The high-conviction global funds bucking the trend

28 October 2014

Funds like Stephen Anness’ Invesco Perpetual Global Opportunities fund, which has just 35 holdings, are difficult to find in a sector comprising more than 250 funds.

By Joshua Ausden,

Editor, FE Trustnet

Equilibrium’s Mike Deverell says managers’ refusal to take big active bets is to blame, with many afraid to deviate from indices comprising such a huge abundance of stocks. FE Trustnet research appears to back up his claim.

Only 27 of the 264 funds in the sector – or 10.2 per cent – hold more than 40 per cent of their assets in their top 10 stocks.

This contrasts with almost half of the IMA UK Equity Income sector, including Neil Woodford’s CF Woodford Equity Income fund with 49 per cent and Hugh Yarrow’s Evenlode Income fund with 55 per cent.

Five of the funds in question are run by one group, First State, which is well-known for its high conviction style. Others on the list include high-conviction specialist Nick Train’s CF Lindsell Train Global Equity portfolio.

Having big bets in a small number of holdings isn’t the only way to add value, of course. Less concentrated portfolios may still have significant sector and stock overweights.

Invesco Perpetual Global Smaller Companies is a good example – it has less than 10 per cent invested in its top 10, yet has consistently outperformed its peers and benchmark.

However, it’s telling just how few managers are genuinely benchmark agnostic, which always gives their funds a greater chance of outperforming.

With this in mind, and in the first of a new series of articles, we look at those funds that buck the trend, starting with FE Alpha Manager Stephen Anness’ four-crown rated Invesco Perpetual Global Opportunities portfolio. It has 46 per cent of assets in its top 10 and only has 35 positions in total.

ALT_TAG Anness (pictured) previously ran funds on Invesco Perpetual’s UK desk with fellow FE Alpha Managers Neil Woodford, Mark Barnett and Martin Walker, heading up the five crown-rated UK Aggressive portfolio between 2008 and 2012.

He joined the global team in 2009 in search of a new challenge and started running the four-crown rated Global Opportunities portfolio in January 2013.

Anness believes that the success of Invesco’s UK range can be replicated in the global sectors, pointing to the lack of high-conviction, concentrated portfolios specialising in this arena.

“The way I ran funds on the UK desk was very much in keeping with how Invesco Perpetual runs money – it was a high-conviction portfolio with a long-term focus,” he said.

“It was a very concentrated portfolio, with very strict meritocracy, and that’s what I’m doing now with Global Opps. Yes, there is diversification from a regional and sector point of view, but I’m only holding 35 to 40 stocks.”

“I believe in concentrated portfolios. If you go through the global sector there are many which you’d have to say are quasi-index buyers, which we recognised. Some run money on an asset allocation basis, but there are few genuine high-conviction bottom-up funds investing on a global basis out there.”

Anness invests the bulk of his portfolio in “textbook long-term winners,” usually high in quality and industry leaders. He attempts to buy these when they are out of favour and aims to hold on to them for many years.

“I’m not just looking at P/E ratios – there are other ways a business can be seen as cheap,” he said.

“Mastercard is not a cheap business on a P/E basis, but it generates a huge amount of cash. The cash flow and cash flow yield is very strong, and on this basis it is cheap.”


The rest of the portfolio – usually about 20 per cent – is invested in “special situations”.

“For these I’m looking for a catalyst for change. They’re usually structurally challenged but looking at ways to turn things around,” he said.

FE data shows the £159m Global Opps fund has returned 30.52 per cent since Anness took it over, putting it in the top quartile of IMA Global.

This compares to 22.66 per cent from the sector over the period.

Anness is also beating the FTSE All World and MSCI AC World indices over the period, though he takes the IMA Global sector average as his benchmark.

Performance of fund and sector since Jan 2013

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Source: FE Analytics


The fund was a top decile performer in 2013 with returns of 37.13 per cent.

2014 has been a more difficult year. Our data shows that Global Opps has fallen into the bottom quartile over the period, losing just over 4 per cent.

Hefty positions in both Booker Group and Thomas Cook have contributed to the underperformance, with both UK companies making double digit losses this year.

“Given what the market has done since I took over, the fund has done very well. I’ve had a bit of a more difficult time this year. My active share is 93 per cent, so there are always periods when I’m going to go through underperformance,” he said.

Anness remains optimistic about the two UK companies, however, highlighting Thomas Cook as one he is particularly bullish on at the moment.

“The fund bought it when it was on its knees in 2011. It’s had a very good turnaround and we’ve been very active with its chairman and its executives,” said Anness, pointing out that the stock has also been held by Barnett’s UK Strategic Income fund.


“It’s been my best performing stock but the worst year-to-date. From this point, I think there is still a lot of legroom for it to re-rate. The expectations and valuation for it is extremely low, but it has a very good free cash flow yield.”

Performance of stocks in 2014

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Source: FE Analytics


“It’s fallen recently but has anything about the business changed? I don’t think so.”

The fund had as much as 7.7 per cent in Thomas Cook in 2013, though Anness took significant profits at the beginning of this year, cutting his position to 4 per cent. He has recently topped it up again, and the company currently has a 4.4 per cent weighting in the portfolio.

Though the fund has had a difficult time this year, Anness says he has a firm eye on downside protection.

Like most of his colleagues at Invesco, finding quality companies is a priority. Global Opps has so far been more volatile than its sector average under his leadership, however.

Rob Gleeson and his team rate the fund highly, including it in the FE Select 100.

They are not concerned by the recent period of underperformance, believing it’s natural for a high-conviction manager to suffer bouts of underperformance.

“The portfolio is very different from the market it invests in, reflecting the managers’ high-conviction style, and contains only 40 to 50 stocks, with a minimum 1.2 per cent position in each,” said the team.

“We rate Anness highly following his previous experience running UK and European funds, and believe that his high-conviction unconstrained approach will transfer well to this fund.”

“He and [co-manager] Andrew Hall have started well, but a portfolio such as this is likely to go through periods of relative underperformance.”

The team says the fund should be seen as a long-term holding, to be held for a minimum of five years.

Invesco Perpetual Global Opps has ongoing charges of 0.95 per cent.

While Anness says he pays little attention to the macro outlook, dedicating the bulk of his time to company analysis, he doesn’t believe that the recent concerns over the global economic recovery will result on a full-scale crisis.

He points to US financials as being particularly cheap, including McGraw-Hill Financial, JP Morgan Chase and First Republic Bank San Francisco in his top 10. He also used last week’s falls to add to a position in Citi Group.

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