Why high risk investors should look to Slater

The MFM Slater Growth fund aims to achieve long-term capital growth by investing in attractively priced companies that exhibit superior, sustainable growth potential that is not reflected in the equity price.

The fund is benchmarked against the IMA All Companies sector average and FTSE All-Share index, although investors should note that the composition of this fund is likely to be more heavily focused on smaller companies than the sector average.

The fund is managed by Mark Slater who is chief investment officer and co-founder of Slater Investments. He is supported by two highly experienced analysts. Slater also manages two other retail funds, MFM Slater Recovery and MFM Slater Income, as well as bespoke mandates.

The philosophy of the manager is that excess returns can be achieved by identifying growth companies that are undervalued by the market. In order to identify such companies the process is initially reliant on a screen looking at the relationship between price-to-earnings ratio and earnings growth.

The market cap of a company is considered when analysing the peg ratio, with a lower peg ratio required for small cap companies to reflect the greater risk inherent in such companies compared with large caps.

While the peg ratio drives the process, the manager also looks for companies to have strong cash flow; a robust balance sheet, avoiding companies with high gearing; and a strong competitive position whereby they have an identifiable edge over competitors.

When selling a stock out of the portfolio the manager considers a high peg ratio to be a sell-indicator, but will continue to hold companies until there are better opportunities. Other sell-indicators include changes in the investment rationale for the company, for example a profit warning or poor relative strength of the equity compared with the fund manager’s expectation.

The portfolio is high conviction, and likely to hold 25 to 40 stocks. The portfolio is constructed with little regard to any benchmark. New holdings will normally enter with at least a 2 per cent weighting, but that can be as high as 4 per cent. The risk limits are a maximum of 15 per cent for a single company and 20 per cent in a sector. The fund is managed with a long-term investment horizon and therefore turnover is low.

Richard Whitehall, investment research analyst at OBSR, said: "We like how fund manager Mark Slater diligently applies the process which identifies companies that have strong earnings growth prospects, robust cash-flow generation and a competitive advantage within their market."

"We believe the fund is an attractive option for UK equity investors willing to accept the significantly higher risk that may come with a concentrated portfolio of UK-listed predominantly small companies."