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Mark Slater: My income, growth and recovery stock picks for 2014

20 July 2014

The FE Alpha Manager reveals which stocks he has been buying for his three different UK equity funds.

By Alex Paget,

Senior Reporter, FE Trustnet

FE Alpha Manager Mark Slater (pictured) is one of the most renowned boutique UK equity managers in the industry.

ALT_TAG He is very much a bottom-up stock picker who tries to ignore macro noise when making an investment decision.

This approach has seen Slater return 225.04 per cent to investors since the turn of the century, beating his peer group composite by more than 140 percentage points.

He currently manages the MFM Slater Recovery, MFM Slater Growth and MFM Slater Income funds, all three achieving top decile performance in their respective IMA UK equity sectors over the last year.

Here, he highlights the three stocks he has been buying across his funds and the reasons why he is so bullish on them.

Income – Melrose Industries

Slater’s first featured stock is FTSE 250-listed Melrose Industries, which he holds in his MFM Slater Income fund.

Melrose focuses on acquisition and improvement of underperforming businesses by either substantial investment or by implementing a change in management.

Like the vast proportion of mid-cap stocks, Melrose has had a difficult year in 2014. Investors who bought shares in January would now be sitting on a loss of 14.6 per cent.

Performance of stock vs index in 2014


Source: FE Analytics

While Slater admits the nature of the business means that returns can be lumpy, he says the recent falls have provided investors with a good opportunity to buy a stock with both dividend and capital growth potential.

“This strategy has created £3bn of shareholder value in the last 10 years and generated an average return on investment of 27 per cent since the group’s first deal in 2005,” Slater said.

“Whilst asset sales and returns of capital to shareholders are unpredictable, a progressive dividend policy is maintained and provides a basic yield in excess of 3 per cent currently.”

He added: “A substantial share purchase by the chief executive during the month was encouraging.”

Our data shows there are four IMA funds that count Melrose as a top-10 holding, including FE Alpha Manager Julie Dean’s £2.3bn Schroder UK Opportunities portfolio.

Growth – First Derivatives

Slater has bought First Derivatives, the FTSE AIM-listed financial software firm, for his MFM Slater Growth fund. It is his second largest holding in the fund, making up 3.26 per cent of assets.

Slater says the major reasons why he likes the company is because it is becoming a leading player in an ever-expanding sector.

“The group provides: trading, algorithmic trading and trade surveillance platforms; data monitoring, analysis and investigation systems; data management and processing platforms; and consultancy services to an industry with an increasing need for rapid functionality and enhanced surveillance and data monitoring systems.”

“Recent results showed further significant progress and a strong pipeline of new business.”

Investors in First Derivatives have been very well rewarded over the long-term, with the stock returning close to 1,500 per cent over 10 years.

However, as the graph below shows, its share price has plummeted so far this year.

Performance of stock over 10yrs


Source: FE Analytics

Though First Derivatives has fallen more than 20 per cent in 2014, the stock is still trading on a high price-to-earnings (P/E) ratio. However, Slater says it is worthy of its current rating.

“Given the earnings growth expectation of close to 20 per cent per annum for the foreseeable future, a P/E ratio of 21 is undemanding, especially given the potentially transformational impact of large contract wins,” Slater said.

Apart from the MFM Slater Growth fund, there are four other portfolios which count it as a top-10 holding: Unicorn UK Growth, L&G UK Alpha, L&G UK Special Situations and L&G Worldwide.

Recovery – Trifast

Slater’s final pick is Trifast, which has a market cap of £140m and is a constituent member of the FTSE Small Cap index.

The company designs, manufactures and distributes industrial fastenings to businesses across the world. Their main operations are carried out in South East Asia – principally Singapore, Malaysia, China and Taiwan.

According to FE Analytics, Trifast has already returned more than 130 per cent over the last 12 months, while the FTSE Small Cap index has returned just 13 per cent.

Performance of stock vs index over 1yr


Source: FE Analytics

Despite those stellar returns, Slater says he has no-plans to sell Trifast as he is extremely bullish on the company due to its new and ambitious management team.

“A focus on self-help measures as part of a continuous improvement programme has produced enviable growth over the past four years and an impressive track record of total shareholder return,” Slater explained.

“Organic growth is supplemented by selective acquisitions (including the recent purchase of a complementary Italian company) and further opportunities exist in a very fragmented supply sector.”

He added: “The prospective PER of just over 17 times is fully deserved and is not an adequate reflection of the true potential of the group’s ambitious management team.”

The five-crown rated Conbrio Sanford Deland UK Buffettology fund, Unicorn UK Smaller Companies and the Schroder Institutional UK Smaller Companies fund all count Trifast as a top-10 holding.


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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.