The Alpha Manager interview: Mick Brewis

While American investors on Wall Street may be looking for the quick money, Mick Brewis manager of the Baillie Gifford American fund says seeking longer term rewards can be just as powerful a motive in seeking out the best US listed companies with market cap above $1.5bn.

"Much of Wall Street can sometimes concentrate too much on quarterly earnings or short-term momentum issues. We think that throws up investment opportunities for patient long-term investors," Brewis says.

Q: What is your stockpicking approach?

A: What we’re looking for are really well managed companies, with strong competitive positions, and attractive financial characteristics. We go through the figures in some detail to work out financial characteristics such as margins and return on capital to see if the fundamentals make sense to us.

Q: How do you approach risk?

A. The first one that we are aware of is business risk. Our tendency is to think about the business characteristics and the risk of share prices going down a lot.

In terms of the number of stocks in the 40-60 range of holdings we look to have a good level of diversification across sectors. Compared to the S&P500 sectors, our weightings will be +/- 12 per cent for each sectors. On stocks we have a maximum weighting of 7 per cent against the market weighting.

We also look at the tracking error and have a risk team at Baillie Gifford which writes quarterly reports on our funds. That covers various aspects of risk , including tracking error and beta.

Q: Considering the focus on the US consumer’s role in dragging the US out of recession, are you adjusting the portfolio to reflect this in anyway?

A: In terms of Wall Street undervaluing sustainable growth, we feel that is acutely happening at the moment. We think many of the resilient growth stocks have been left behind. Consumer Staples are good examples of that. These are often companies with strong brands, strong market conditions.

Wal-Mart may be an example. It’s particularly well placed in the current environment because of its low prices, and as the consumer is looking for good value that’s playing its strengths.

Healthcare is another sector we've been adding to recently. Companies such as Johnson & Johnson are now improving pipelines of drugs. Recently drugs companies have been out of favour because of the Obama health reform concerns. We felt that that was an opportunity to add to some of the stocks. The future growth prospects were brightening on fundamentals and we’re taking a view that the reforms won’t be as extreme as some of the worst fears about them.”

Q: If the US does roll out of recession, and keeping in mind your own 3-5 year investment time horizon, how are you preparing for this?

A: We run a focus list of companies that across all the sectors, where we like the management and competitive prospects, but where we are not invested possibly because of concerns it’s not the right time in the cycle.

In terms of the outlook we are inclined to be patient in terms of investing in the more cyclical companies. Our view is that it is encouraging for the economy that the banking system has been stabilised and consequently the economy has been stabilised. However I think we need to bear in mind consumers will be saving more in the years to come to try to pay off their debts.

I’m not really a believer that inflation is about to take off. I think the main risk is still the deleveraging affecting consumers and businesses in the economy, that actually the main challenge of policy is to counteract that deleveraging. If that’s the case inflation won’t take off because there is still plenty of spare capacity around in the US and around the world, in terms of manufacturing capacity and labour markets.