HEAD-TO-HEAD: Ninety One versus Threadneedle

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Investment approach

“The Ninety One fund is very much style agnostic and does not invest based on a single investment theme, growth driver or market-cap, giving it the flexibility to outperform,” said McDermott.

The 50-90 stock portfolio is well diversified with manager Simon Brazier’s main ethos behind the fund being that markets are inefficient, which comes primarily from stocks being mis-priced over a three to five-year view.

“His aim is to find out what a company is truly worth in that period and then buy low and sell high relative to that valuation,” said McDermott.

“The majority of the portfolio is invested in companies with attractive quality characteristics in terms of business model, financial model and management,” he added. The strategy will, however, also seek to exploit restructuring or recovery opportunities, shorter term cyclical opportunities and contrarian or “hidden gem” opportunities, provided there is strong valuation support.

The process works in three stages: idea generation, fundamental research and analysis, and portfolio construction.

The fund will not invest in companies that do not return any capital to shareholders. Risk management is also embedded in the fund – this means globally diversified, cash generative businesses will be a larger part of the portfolio – with at least half of its holdings in the FTSE 100.

Cyclicals and retailers, for example, are likely to have smaller positions, purely because they take more risk, according to McDermott.

The Threadneedle fund is a “high conviction portfolio” of 30-50 companies which is not restricted by index, company size, stock or sector. The fund is also style agnostic, although it typically has exposure to larger companies.

“One of the big benefits behind this fund is the strength of the UK research desk, which covers companies of all sizes,” said McDermott. Access to company management is an important part of the process, with the team conducting around 800 meetings a year.

“The result is a fund which combines both bottom-up stock picking with a top down, macroeconomic view,” he said. The fund is well diversified from a sector perspective, with consumer products and financials typically the largest contributors.

Fund characteristics

Sector allocation:

Source: Fund factsheets, 30 April 2021

Top 10 holdings:

Source: Fund factsheets, 30 April 2021

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