Weightings in successful individual stocks have played a large part in the strong performance of Cavendish Opportunities over the turbulent conditions of the year so far, according to fund manager Paul Mumford (pictured). 
Some of the largest weightings in his portfolio have carried its performance significantly this year, as the companies have seen a dramatic increase in share price since he has held them.
So far this year, the £131m Cavendish Opportunities fund has returned 11.03 per cent, outperforming its peer average in the IA UK All Companies sector more than six times over and putting it in the peer group’s top decile.
Performance of fund vs sector and benchmark in 2015
Source: FE Analytics
“All in all, we hold a pretty wide spread of the market in terms of sectors, so the performance is more likely to come from bottom-up stock selection,” he explained.
“One stock that may have helped is STV, which is my biggest holding. Unusually for me, the holding is about 4 per cent of the portfolio. The reason it’s 4 per cent of the portfolio is not that I’ve been taking bets on companies because I don’t do that, it’s purely because the share price has gone up and I’ve seen absolutely no reason to sell the shares.”
Mumford bought shares in STV, which was previously known as Scottish Television, for less than £1 each. Currently, its share price is up to £4.30, turning the £1.2m he originally invested into more than £5m.
“I bought them on the back of some results when they were selling at about 3.5x earnings. They had a reasonable amount of borrowing but I thought the earnings would solve that problem fairly quickly,” he continued.
“They were producing decent results and I couldn’t understand why the share prices hadn’t moved up, so I asked one of the brokers and they said that one of the large institutional holders which held about 11 per cent [of the company] was selling and everybody knew about it so nobody wanted to buy.”
“I still took a holding because I’ve been in this sort of situation before and it turned out that it wasn’t the whole 11 per cent that was being sold but one fund was changing manager and that manager was shifting them out of his portfolio.”
Mumford said that once this overhang disappeared, the share price began moving in the right direction. Following a series of tailwinds recently including a licence renewal, the introduction of new radio stations and an internet service as well as a recent deal with advertising giant WPP, things have continued to improve for the company.
Performance of stock vs index in 2015
Source: FE Analytics
Another large holding the manager has is Eckoh, a telecommunications service provider, which has increased in size from £640, 000 to £3.3m since he has held it.
This is another stock that Mumford has increased his exposure to recently and has reaped the benefits from, and he expects to company to keep on growing.
“Below that we’ve got JD Sports which is also 2.5 per cent of the portfolio and has again gone up from £390, 000 to £3.2m and it’s had some decent results recently,” he added.
The only two other stocks that Mumford holds more than 2 per cent of his portfolio in is Alliance Pharma, which he says has doubled in price since he bought it, and international shipping company Clipper Logistics.
Since the end of June, the manager’s weighting in Clipper has increased by approximately 70 basis points to 3 per cent, making it the second largest holding in the portfolio.
“Clipper is an interesting company because it’s in an area that I swore I would never want to invest in again – it’s in the support services area,” he said.
“A broker really twisted my arm to see the company and I originally said no because I’d had an interest in the general area in the past and I never really made a lot of money from the stocks that I held.”
However, Mumford changed his mind following its list of well-established clients including John Lewis and Asos, and its returns services, which he says have become more vital than ever following the increase in online retail purchasing across the globe.
Despite the fund’s success this year though, its performance suffered in 2014 and sat in the bottom decile, losing 5 per cent and underperforming its peer average by 6.01 per cent.
However, Mumford says this is nothing more than part of his investment style as he focuses on value opportunities, which often take a while to turn around and begin delivering strong performances.
One example of an unloved area of the market he was increasing his exposure to is small-cap oil, which he also spoke about with FE Trustnet earlier this year. This sector has had a tough time, following the dramatic fall in the oil price.
Currently, the manager has a 7.7 per cent weighting in the oil & gas, which is the portfolio’s third-largest sector allocation.
“The oils have generally been drifting lower. Looking at the various sectors of the market, I tend to be an awkward blighter by going for sectors and stocks that I think are cheap and out of favour. Vastly I tend to hold areas that people don’t necessarily like and were probably depressed to start with,” he said.
“Because these oil shares were coming back, the performance [of the fund] might have suffered, but now is an ideal time to get on board.”
Mumford adds that investors can’t gauge the success of a fund if they concentrate on annual performance and stresses that he invests on a five- to 10-year outlook.
“I let other people analyse these short-term time frames – I think it’s a bit of a waste to be perfectly honest,” he said.
“We’ve been here with oil in the past and we’ve seen prices come back, and I’m invested in the North Sea area almost exclusively, avoiding places like the Falklands for instance. A lot of these valuations are completely compelling because nobody apart from myself wants to buy shares in the sector.”
“You mark my words, come back to me in five years’ time and you’ll see that I’ve bought good stocks. In my opinion, this is where the ‘10 baggers’ are – the stocks I think have the potential to go increase 10 fold.”
Cavendish Opportunities has delivered a top-quartile performance over one, three, five and 10 years. Since Mumford launched the fund in 1988, it has returned 1169.2 per cent and has comfortably doubled the performance of both its sector average and its benchmark.
Performance of fund vs sector and benchmark over management tenure
Source: FE Analytics
The fund has a clean ongoing charges figure of 0.81 per cent.
