Jim Slater has been a big influence on private investors for several decades, thanks to his ideas about growth stock and small-company investing. Now, his son Mark is bringing Slater strategies to the masses by pitching a fund once available only to institutions directly to the public.
The fund in question is MFM Slater Growth, or MFM Slater Pension Fund as it was known until April. It is one of the top performing funds in the UK All Companies sector. The fund's rebranding is however described by Slater Jnr as a 'new launch', in so far as the fund's remit has also changed. A move to a pure focus on growth seemed an obvious choice, since the asset manager behind the fund, Slater Investments, had no other products with such a mandate. The fund had also been FTSE 100 orientated, but following the changes around 60 per cent of the fund was sold to reinvest in qualifying growth companies.
"We have changed the character of the fund quite significantly," says Mr Slater, although he maintains that he and the investment team are not new to running money in this way and have always invested for growth. The fund's performance is certaintly testament to this. Recent data shows MFM Slater Growth to be the third best performing fund out of 233 with a five year record in its sector, and the top fund over one year by quite some margin - 70 per cent compared to 35 per cent for the second best fund.
The secret behind this outperformance, Mr Slater says, is the fund's focus on dislocation in the stock market and on inexpensive growth shares; the 'growth at a reasonable price' mantra beloved of his father.
Surely there are many other funds with a similar focus? Mr Slater begs to differ. "We are unusual because we only do that," he says. "We have a very pure focus on growth – on companies which can grow sustainably and reliably. This approach reduces our investment universe from several thousands to a few hundred, eliminating most UK shares. It is very hard to find companies that qualify, especially in this economic environment."
He continues: "A lot of fund managers try to assess whether bad news is factored into the price of a stock, but in my view they are not growth investors. If there is a problem, or a small chance of a problem, we don’t want to be invested in that company."
There are also specific areas to steer clear of, such as sectors dependent on government spending. "Reliable growth is particularly important now because the world has changed and the future is particularly unclear," says Mr Slater. "We consider ourselves bottom-up stock pickers and don't take a macro view, but we do read the papers and know what the major factors ar.
"We don't invest in a company if there is significant doubt about a company's future. We seek those companies in growing niches or markets."
A typical holding is healthcare company Hutchison China Meditech, which the fund bought late last year and has added to significantly. "The company has very strong brands and market positions, with a number of its drugs on Chinese state lists," says Mr Slater. "I expect it to grow its turnover at least 20 per cent a year."
Although Mr Slater is cautious on companies exposed to consumer spending, he bought into the Supergroup flotation earlier this year which he says was underpriced. "This company's future growth is likely to be tangible and rapid," he says. "It has doubled since its March initial public offering and we expect 30 to 40 per cent earnings growth."
| Mark Slater CV |
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Mark Slater is chairman and chief investment officer of Slater Investments, a UK equity asset manager he co-founded in 1994. The company manages a hedge fund, three unit trusts and portfolios for pension schemes and high net worth investors. Prior to establishing Slater Investments, Mr Slater was a financial journalist with Analyst, and between October 1992 to March 1994 he was part of the Investors Chronicle's editorial team. Mr Slater has an MA in history from Cambridge University. |
Whittling it down
Mr Slater and his investment team's investment process sees them initially screen for low price/earnings to growth (PEG) and price-earnings (PE) ratios, high growth and what he describes as the key - high levels of cash flow. "If any of these then have an erratic earnings record, a poor outlook or don't generate cash we remove them," he explains. "For example, Connaught always qualified on paper, but its cash flow numbers were always terrible.
"With these key criteria you get to a small number of companies very quickly, and we look for certain details, for example we want to see a positive most recent chairman's statement."
This strict approach has resulted in a fund with a very concentrated portfolio, only between 25 and 50 stocks. "It is better to be concentrated where you are confident than add in fillers," says Mr Slater.
But what about the investment risk of having your money concentrated in a limited number of holdings? "There is no way of investing to protect yourself against a collapse in the market, but if you invest on a sensible basis your companies should come out of market dips," responds Mr Slater. "A lot of companies we own now have a higher share price than before the financial crisis. But you have to take a medium to long-term view – there is no guarantee against short-term fluctuations. Over five years we would hope for one to two good years, one not so good and the rest ok, but if we keep performing it adds up."
He adds: "We typically hold our stocks for between two and four years but have held them for as long as ten, Domino's Pizza being an example of a longer hold. Usually we get in at a good price of maybe a 12x to 13x PE. Then the company generates earning growth of maybe 20 per cent a year, the PE rises in to reflect the quality of the business and its growth – maybe a 20x PE - and then we move on."
