His Neptune UK Mid Cap fund – still just £48.4m in size – is number-one out of almost 300 in its IMA UK All Companies sector over one and three years, and sixth since its launch in December 2008.
Performance of fund vs sector and benchmark
| Name | 1yr returns (%) | 3yr returns (%) |
|---|---|---|
| Neptune UK Mid Cap | 38.07 | 85.06 |
| FTSE 250 Index | 22.58 | 50.78 |
| IMA UK All Companies | 14.7 | 32.85 |
Source: FE Analytics
With returns of 85.06 per cent, Martin’s portfolio is beaten by only three funds in the entire IMA unit trust and OEIC universe over three years.
The manager looks for companies that have one of three characteristics: structural growth, recovery or turnaround. Here, he identifies three companies that tick all of these boxes and that he thinks are best-placed to outperform in 2013 and beyond.
BTG
"This is one of my healthcare companies – an area I have a big overweight in," said Martin (pictured).
"BTG has recently joined forces with Johnson & Johnson. It launched a drug called Zytiga, which is used to combat prostate cancer.""It’s the most successful oral ontology drug ever released. There haven’t been a lot of successful treatments relating to prostate cancer, so this is a very big deal."
"Zytiga is a multi-billion pound opportunity. It’s recently been approved for pre-chemotherapy patients, which makes its appeal even bigger."
"I think the decision to join forces with Johnson & Johnson is very savvy; BTG has been very good at developing drugs, but it doesn’t have the sales-force of a company like Johnson & Johnson."
The stock did well in the first two-thirds of last year, but came off a bit towards the end due to a greater demand for cyclicals.
Performance of stock over 1-yr
Source: FE Analytics
"I took this dip as an opportunity to buy," added Martin who, like Jan Luthman, believes UK healthcare should no longer be viewed as a defensive play.
"Some investors are put off by UK biotech companies, because they think that like in the US, they have no funding. This is no longer the case."
Martin points to BTG’s varicose vein treatment Varisolve, worth a potential £500m, as another plus for the company.
Standard Life UK Opportunities and the Aurora Investment Trust both hold BTG in their top-10.
Redrow
"This is one of my recovery stocks in the housebuilding sector," explained Martin. "I’ve got quite a few in this area now."
"Redrow’s chairman and founder is Stephen Morgan, who’s perhaps better know for being Wolverhampton Wanderers FC’s chairman. He’s a very astute, canny individual, who has historically timed the housebuilding cycle very well."
"He tried to take the company private last year but it was rebuffed by shareholders, which I take as a very good sign. If you combine this with the government’s funding-for-lending and first-buy schemes, I think you have a very good dynamic."
"Historically this company has been on a premium to the sector, but this is not currently the case, so it’s a nice little valuation story as well."
Performance of stock over 5yrs
Source: FE Analytics
Redrow has had a strong three years – up almost 50 per cent – but the company’s poor showing during the financial crisis means that it is still down 34.7 per cent over five years.
Berendsen
Berendsen falls into the category of "turnaround stories" for Martin.
"It’s not a particularly exciting company, manufacturing washroom facilities and workwear – particularly for industrial workers."
"However, it got a new chief executive in 2010 in Peter Ventress, who has come in and taken a private equity approach to running the company."
"It’s far more efficient now as a result. Peter has cut away a lot of the fat and transferred the cash-flow returns to shareholders. The market is beginning to appreciate the impact he has."
According to FE data, since Ventress’ arrival in January 2010, Berendsen is up 79.68 per cent.
Aberdeen UK Mid Cap, Threadneedle UK Mid 250 and the Aberdeen Smaller Companies High Income trust all hold the stock in their top-10.
Neptune UK Mid Cap requires a minimum investment of £1,000 and has a total expense ratio (TER) of 2 per cent.
In a recent interview with FE Trustnet, Martin said he is very optimistic about the outlook for UK companies and that the equity rally has only just begun.