Jeremy Lang’s Ardevora UK Income and Ardevora Global Equity funds are ideal funds to sit alongside each other despite a ‘doubling up of management risk’, according to GAM investment manager James McDaid, who thinks the manager’s “unique style” can work in both the UK and global equities spaces.
Former Liontrust manager Lang has run the two funds alongside William Pattisson since February 2011, with Ben Fitchew and Gianluca Monaco also helping to manage Ardevora Global Equity. The managers take a very diverse approach to equity markets compared to the majority of their peers in the IA UK Equity Income and Global sectors.
McDaid, who works with Charles Hepworth on GAM’s multi-manager portfolios, said: “We have held the Ardevora UK Income fund since January 2013 and it has been one of our core UK funds since then. It has done extremely well for us.”
“We knew Jeremy from his Liontrust days and so were aware of the team’s ability. Then in March this year we decided to invest into the global equity long/short fund. The reason being that the investment universe is beyond the UK but their investment process could be replicated elsewhere.”
He likes the funds’ more psychology-based investment process, which is framed around the belief that people investing or otherwise involved in financial markets are likely to make predictable mistakes which can be exploited.
“What they look for is investment bias in the company management in terms of risk taking and analyst overconfidence, and you find that all over the world. We want to tap into Jeremy’s style of management, which is quite unique, to gain some global exposure.”
“There is increased resource if needed because of the wider universe but the same process. Portfolio crossover is not material. Cable & Wireless is held in both funds – much more so in the UK Income fund at 4.25 per cent and is 1 per cent in the global fund so ‘doubling up’ isn’t a huge issue.”
According to FE Analytics, both funds are top quartile in their respective sectors over three years.
Ardevora UK Income is up 70.7 per cent over this period while the sector average in the IA UK Equity Income is 53.96 per cent and the FTSE All Share has gained 43.7 per cent. It is also top decile since launch.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
McDaid says he is bullish on the prospects for both funds and their wider markets but has mostly been adding new cash, as well as from profits taken from fixed-income holdings, to Ardevora Global Equity.
This fund has gained 63.29 per cent over three years while beating the index and sector average as well as more than 80 per cent of funds in the IA Global sector.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
McDaid concedes that owning the same manager for different assets can double up risk in the event of them leaving but it doesn’t hold so much in the case of these funds.
“It could do but with Ardevora – and with Jeremy and William – they have a shedload of their own assets in it and so their interests are very much aligned with interests of other investors. There is a complete alignment of interests.”
Lang has recently hinted at a more bearish tone than in recent years, believing the market is holding pockets of value traps.
“For the remainder of 2015, choosing to not own certain stocks will be at least as important as the choice of what to own. Most energy and mining businesses look too risky to us. The management of these companies still look to be in denial, so for the investment horizon we operate on, these are best avoided. We feel the same way about UK supermarkets and most UK banks,” he said.
“Putting considerations of risk first, regardless of other people’s views, has served us well over the last four years and is a discipline we will stick with.”
Another fan of Lang’s style is Margetts’ Toby Ricketts, who says Ardevora UK Income is good option for UK equity income investors and recently sold top-performing Fundsmith Equity fund to buy this portfolio.
Lang recently revealed five well-known dividend paying stocks that he is backing but which he thinks are mispriced in the wider market.
Ardevora UK Income has a yield of 3.6 per cent and a clean ongoing charges figure (OCF) of 0.94 per cent while Ardevora Global Equity has a 1.17 per cent clean OCF.