The manager of the £58.9m Rathbone Recovery fund says that the companies that have been improving throughout the global downturn have done so by relying on a core of strong balance sheets, growing revenue streams, smart management and gaining market share. "The extent to which companies are feeling the slowdown depends very much on where they are positioned," she said.
"Those companies exposed to China are definitely seeing a slowdown. However, it’s clear that raw material prices have come down and this is improving margins."
"The businesses in which we invest have strong balance sheets – they don’t need more cash. This is very important when you invest in companies which are exposed to the macro environment."
"They need to be market leaders and they need to have come out of the last recession stronger than when they went in."
Bond, who manages the fund alongside Rathbones' chief investment officer Julian Chillingworth, says that her investment style revolves around finding companies that have made significant structural changes to improve the quality of their earnings despite the uncertain economy.
"Booker is a company we’ve held since the launch of this fund. It’s the largest cash and carry operator in the UK and it’s also the lowest-cost supplier so it tends to do quite well in a difficult environment," she explained.
At 4.79 per cent, Booker represents the fund’s largest holding.
"The competition is heavily laden with debt and this is playing to Booker’s advantage because its balance sheet is strong and it is incredibly well run. It has also recently announced the acquisition of a competitor."
"Chief executive Charles Wilson has now turned this business around twice. The company is set to open a few stores in India which could be an exciting market for them and there is also plenty for them to do in the UK."
At the smaller end of the spectrum, Bond has identified GB Group, a company that has developed technology that enables businesses to verify their customers' identity online.
"GB Group has done well so far this year and I think it will continue to do well," she said.
"The company helps businesses to not only minimise fraud and regulatory risk but also to develop relationships with customers and maximise revenue opportunities."
"Recent results illustrate how the business has really strong organic growth and is improving its margins. It is also not particularly well known by the investment community."
Ideas such as these have contributed to the fund's strong performance. FE data shows that it has returned 58.68 per cent since it was launched, three years ago this month, outperforming FE Alpha Manager Tom Dobell’s £7.4bn M&G Recovery fund which has returned 51.33 per cent over the period.
Performance of fund vs sector since launch
Source: FE Analytics
"One of the factors behind our outperformance is our exposure to small and mid caps but we think that it is all about stock picking at the end of the day," Bond continued.
"We are specifically looking for management turnarounds and we’re not investing in early-stage, financially distressed businesses where you can get into trouble."
"I think we have an advantage in terms of fund size as well. We can be reasonably nimble and invest right across the size spectrum."
"The more exciting and genuine recovery stories are at the smaller end of the market and some of these companies have very few, if any, analysts covering them, so you can really pick up value."