Investors underestimate the importance of corporate governance, says Ian McVeigh, manager of the Jupiter UK Growth Fund. "Shareholders have not always had their fair share of the success of many UK companies. In the past 10 years, I have made good corporate governance a key plank of my strategy to seek a more equal distribution of rewards.
"We sense that lots of management teams are only there for three years and then off to the next challenge. A relatively small number of teams are long-term owners of businesses, which leads to a very long-term view of the capital value of the business. But the governance case and the investment case are one and the same."
He cites the example of Howden Joinery Group (HWDN), held in his portfolio - current chief executive officer Matthew Ingle was also founder of the business in 1995.
Mr McVeigh has managed the Jupiter UK Growth Fund (ISIN: GB0004792130) for 10 years with a focus on contrarian stockpicking. Under his stewardship, investors have enjoyed returns of 205 per cent compared with 147 per cent from the fund's benchmark, the FTSE All-Share index. The fund has also outperformed this benchmark over one, three and five years.
In the early years of running the fund, Mr McVeigh's strategy was characterised by an emphasis on buying shares that had fallen sharply, but held the strong potential for recovery. He bought stocks such as Prudential and Rolls-Royce that had tumbled along with the rest of the market in the dot com crash of 2000.
He then adopted a similar approach as the stock market began to stage a tentative recovery following the financial crash of 2008. This led to him buying the banks, starting with Barclays, which went up significantly. He took out a lot of this gain and refinanced into Lloyds Banking Group and RBS.
"You have to buy when things look bad in the hope that they get better," he says. "It's taken a longer time than we thought, but we still think there is more to come."
Today he has a 25 per cent exposure to financials, including Lloyds Banking Group, Barclays, Legal & General, RBS and HSBC. "There's still a long-term value story," he says. "If we were to have a functioning recovery, we felt the banks would have to lend."
Of his biggest position, Lloyds Banking Group (LLOY), he believes that it can make earnings per share of 6-7p. So in future he thinks it will pay good dividends. He has a target price for Lloyds of 102p on today's 48p.
Other themes in the portfolio include the UK high street, where he believes "a highly efficient well-run retailer can do well when the competition is fragmented". Plus, he is not so sure about the power of the internet to destroy businesses. "We are assured that HMV is a model for any business not interested in the internet," he says. (Music and entertainment retailer HMV Group went into administration in January and has since been bought by Hilco UK). "But there are other companies where the net won't wipe them out necessarily."
Here he cites his holding in Dixons Retail (DXNS), the electricals and technology retailer. He says that Dixons is watching prices on rival Amazon closely, but offering technical back-up (something that Amazon can't do). "We felt Dixons had a future because big Asian manufacturers of goods wanted to showcase on the high street - they felt the need to show customers how to use goods."
"You need to get companies at the point where you think they will live to tell the tale," he says. "There has been lots of fragmentation among businesses even though there is a broad threat from the internet."
With this mind, he holds WH Smith (SMWH). "As ebooks have increased in popularity, people thought WH Smith would be done in," he says. "But the WH Smith book buyer only buys two to three books a year. They are not going to buy fiction to read on an iPad."
Another holding is travel adviser Thomas Cook Group (TCG). "It was assumed to be a remorseless victim of online purchasing," he says. "But it has its own online business now. Plus, Thomas Cook has done a big study that revealed price is important to customers, but the security of holidays is also important. It looks like the firm has a future."
Also on his agenda is the rise of the consumer in emerging markets. "We felt the super cycle in commodities had become very commonplace and was factored into forecasts. We try to make money out of what happens next. Commodities has happened.
"But we think the growth in consumer products out of emerging markets demand will be big."
He believes the way forward is to look for 'best-of-breed' companies that are reasonably priced regardless of where they are located. In the UK, that translates into a sizeable holding in cigarette maker British American Tobacco (BATS), which derives a large portion of its profits from the emerging world.
However, he does not hold global consumer goods producer Unilever to pursue this theme. "Unilever does not have aspirational products and could at some point end up at the wrong end of competition in emerging markets."
Nor does he hold global drinks manufacturer Diageo because he thought "an enormously bullish long-term view was being taken".
Instead, he holds Adidas (0OLD), Burberry Group (BRBY) and BMW (O0OV), providers of what he terms "aspirational purchases". "You've got to have a strong brand. The Chinese won't produce a BMW rival luxury car any time soon," he predicts.
