How do you pick stocks?
Our universe is the FTSE 350. We place stocks into seven “style groupings” based on business characteristics, such as “growth defensive”. We use these to understand how firms are likely to perform, in terms of profit and cash flows, as you go through the business cycle.
Which shares have you bought recently?
We bought Man Group, an investment management firm, which looks very cheap for what is a very solid business. It has scope to make acquisitions and has a good price-to-earnings ratio. On the other side, we’ve sold HSBC because the valuation argument changed.
We made 30pc and could not see how we would make another 30pc or even 15pc. This is what good active management should do; it’s why clients pay a fee because we’re saying we’ve had the return and it now represents “bad risk”.
What’s your prognosis for the UK?
The picture remains one where overall demand growth is very sluggish. We’re at the top of the cycle for corporate profitability, which means a lot of the return from markets has already been had. It has been a strong cycle for asset prices, if not for growth, so you have to tilt towards value opportunities in the market.
In 2012 and 2013, when the UK domestic economy was accelerating, you had a very high chance of picking a stock that made you 20pc. But this year the median stock return is down at around 2pc. It’s a completely different market environment.
The fund has so far underperformed the index. Does that concern you?
Remember this is still a very young fund and it is long-only, so I can’t go short in down periods. If I look at our ranking among our peers, we’re consistently in the top 25pc. We might be a bit behind the index, but compared with the peer group we’re up there.
Is your own money in the fund?
Yes, and in the business itself.
What would you have done if you hadn’t gone into fund management?
I have always wanted to do this. My father’s family were tenant farmers, but the land was sold to build a housing estate, leaving a small dairy farm. I found some old share certificates when I was young, my father took me to see a stockbroker and I thought that was a much better way to make money than getting up at 4am to milk cows.
Andrew Johnston is a senior research analyst at Square Mile, the fund research firm.
While this fund was only launched in June 2015, Julie Dean is a very experienced investor.
Ms Dean has been managing portfolios since the late Nineties, using the investment philosophy and process that supports this current strategy for many years. She works alongside a small team of like-minded individuals who have helped develop this method of investing.
The fund is run using what Sanditon terms a “business cycle” approach. That means it acknowledges the cyclical nature of the economy and looks to invest in particular types of company depending on the stage that we are currently in, or moving into.
For example, the portfolio could be weighted towards what have historically been more defensive areas of the market, such as utilities or pharmaceuticals, if the belief is that the UK is about to enter a recession.
This is a gross oversimplification, of course, but what it means is that Ms Dean is trying to deliver a more consistent return profile, one that has the ability to outperform across different market environments.
As such the portfolio will not tend to have a structural bias to any “investment style”, such as always being invested in the UK’s fastest-growing companies or perhaps those that look the cheapest. It will invest in all types of businesses, selecting those most likely to perform best depending on the economic outlook.
Performance, as ever, will ultimately depend on the fund manager’s judgment and, importantly in this case, timing.
However, Ms Dean’s experience of having managed portfolios through multiple investment cycles and the time spent honing this investment process give her a valuable edge in managing a strategy such as this.