One manager avoiding the UK is Neptune’s Robin Geffen, who holds no FTSE-listed stocks in his various global funds because he thinks the general election will cause massive uncertainty in the UK equity market
However, Thomson – who runs the Rathbone Global Opportunities fund – has increased his weighting to the UK from 17 per cent at the end of last year to 22 per cent today.
“For me, I see some of the most exciting, innovative growth companies out there [in the UK] with incredibly experienced, inspiring management teams who are really innovating and differentiating themselves. I guess I’ve seen opportunity arise from those fears that are starting,” he said.
“So we think there are, despite the election fears, exciting opportunities, and I do sense that investors can become a little too obsessed with election outcomes. The political rudder might be a bit stronger than the reality. My hope is that common sense prevails.”
There are a number of UK companies that Thomson is excited about. One of his personal favourites, which he has held in his portfolio since 2009, is the online real estate portal Rightmove.
Thomson and his team have continued to add to the position over the last few months.
“Rightmove is a good example of a business that has pricing power, a differentiated offering. They’ve shaken up their industry and they’ve withstood a number of onslaughts from new competition,” he explained.
The star manager has also invested recently in Hammersmith-based Betfair, the world’s largest internet betting exchange.
The company has encountered a number of controversies since it was founded in 2000, including paying dividends erroneously in 2004 and introducing a “premium charge” for customers who have won a large amount of money after paying a small amount of commission.
Thomson said: “We like Betfair because they’re introducing exciting new innovation. I like gentle innovation. I like innovation but I don’t want it to be too ground-breaking.”
“I don’t want something that requires a complete change of mind-set in order to be a success. Often those companies that require a change of mind-set have struggled to achieve it because we’re all creatures of habit and we like doing things a certain way.”
“Subtle improvements on a way of doing something that we do already perhaps feels more comfortable to embark on.”
A further example Thomson gave of a ‘gently innovative’ UK company he has bought is Primark.
“I think Primark is the most exciting, disruptive clothing retailer in the world, offering something that the customer wants in both good and bad economies, which is cheap prices and lots of choice. That concept resonates with people. I like the value-orientated retail story,” he said.
Despite believing that UK election fears are overhyped, Thomson is still trying to protect the fund from potential outcomes which could bruise areas of the economy.
“The drumbeat of fear surrounding the UK elections seems to be growing and it’s not something I share,” he said.
“But, just in case, I will avoid the most politically-charged hot potatoes. So, areas like the utility sector – we’ve had some comments from the parties on what they would do to the utility prices. The banking sector is a concern, obviously there’s a big focus on things like banker’s bonuses, and there’s risk with property as well as the phrase ‘mansion tax’ is being bandied about.”
“So, while we shouldn’t get too obsessed with election outcomes, I’m still trying to protect myself from the most hot-button issues. There’s no reason to avoid some exciting companies in the UK.”
Thomson emphasises that himself and his team approach investments from a stock-picking perspective rather than focusing heavily on sectors.
However, he has been trimming almost all of the remnants of his oil and gas exposure from his portfolio over the last two months.
“I’ve always been underweight oil and gas companies, but I’ve always had exposure to shale oil and gas companies and services companies,” he said.
“My thesis was that it was never really an oil price-dependent story – this was about a volume geological discovery, one of engineering risk rather than commodity price risk.”
“The problem with this is, when oil prices fall that much, it becomes an oil price story. It went beyond the bounds of what we would have expected as a normal range and lapsed, as we’ve seen.”
“I’ve put my hands up and said this story has changed, and I don’t know when things are going to improve, so I’ve sold almost all of my oil and gas both production companies and services companies related to them.”
Another sector which Thomson won’t touch is emerging markets. He says that he simply doesn’t have enough knowledge of the sector and only invests in stocks or areas which he understands.
“Where I realised I was at an informational and probably intellectual disadvantage was when it came to emerging markets,” he admitted.
“I will have indirect exposure via companies which could be in, for instance, the UK or in Hong Kong that could have underlying operations in emerging markets, but I think they’re the ones that have the expertise to do it.”
“I just don’t think I have that. You’re better placed with dedicated emerging market fund managers who live and breathe the nuances of these markets day in and day out.”
Thomson holds an overweight in US stocks at almost 60 per cent. This is something that has remained fairly consistent throughout his management of the fund.
He said: “People say the US market is expensive, but I don’t think it is. The reality is that in the US we’re in a period of low inflation and strong dollar. That is the best environment for a stock market to be in.”
“At the moment, we’re at a P/E of 15.7, so we’re actually lower than the average of 16.4 during these types of periods.”
“So I would say, don’t believe that the US is necessarily overvalued as the economic backdrop is extremely favourable.”
Since he was appointed manager of Rathbone Global Opportunities in 2003, the fund has made total returns of 291.51 per cent, which is 150.39 percentage points more than its average peer.
Performance of fund vs sector and benchmark over manager tenure
Source: FE Analytics
Within this period, however, was a tough 2008 when the fund lost 39.39 per cent, compared with a 24.32 per cent fall in the sector and an 18.18 per cent decline in the FTSE World benchmark.
This prompted Thomson to overhaul his investment process to add more caution. For example, between 15 and 20 per cent of the portfolio is held in slower-growing, stable companies that offer a degree of protection in down markets.
Rathbone Global Opportunities has a clean ongoing charges figure of 0.80 per cent.
