Peter Cockburn attributes consistently strong performance to resources exposure
Peter Cockburn’s £250m Scottish Widows UK Select Growth fund has shown consistently strong performance, driven particularly by exposure to resources.
Launched in August 1981, the vehicle is up 31.5% over one year to 17 May, according to Morningstar. It sits in the IMA UK All Companies sector.
Cockburn, who has managed the fund since July 2007, describes his investment style as “a theme-based bottom-up approach”.
The portfolio is high conviction, holding 42 names, as at 30 April, consisting of the best ideas generated by Scottish Widows Investment Partnership’s in-house research process.
“My investment approach is very style-oriented and we will go anywhere we can find value,” Cockburn says. “We own stocks according to our view of the upside and downside in terms of share price.”
The manager takes a long-term investment horizon with around half the positions typically held for more than three years, although he also engages in some short-term opportunistic trading.
“We have a core of stocks we have held for a number of years where we continue to see big upside. We complement this by trading in some of the bigger names, which tend to be very volatile.”
These have included areas such as banks, and although Cockburn has generally been underweight, he has bought and sold positions within this sector, in line with his opportunist approach.
Cockburn says performance has been driven primarily by aggressive stockpicking, pointing to resources as a particularly strong contributor.
“We see resources as a structural theme, which will have volatility around it in terms of coming in and out of favour, but generally it is a growth area,” he says.
As a result the fund has been heavily exposed to areas like oil and mining. Another theme which has paid off is emerging market power, specifically Indian power. The fund has owned three stocks for a number of years – one exposed to coal-powered electricity and the other two to gas.
Cockburn explains: “India as an economy imports around $60bn (£42bn) of energy per annum. They actually have a lot of the energy but have not been able to harness it due to a lack of capital or expertise.
“So companies that can provide gas and electricity at much-reduced prices to local players are part of a huge story, which will run for many years to come.”
In recent months the manager has been finding more value higher up the market capitalisation spectrum.
“The UK is an unusual market because 15 stocks account for nearly half of the overall FTSE 100 in terms of market capitalisation,” he says.
“So we have been finding a lot of larger-cap names have been left behind in the rally.”
According to Cockburn, last year was only about risk for investors.
“That was the only game in town that worked,” he says. “So if a company had a strong balance sheet or a very mature business model, it may have looked very cheap but it was left behind in the rally, because investors wanted higher risk situations.”
He points out areas such as pharmaceuticals, tobacco and utilities have all lagged the rally.
“Stocks such as AstraZeneca, and Scottish and Southern Energy are looking like they are offering fantastic value for shareholders,” Cockburn says.
At the same time he has been taking some money out of cyclical parts of the market such as industrial stocks and support services.
Cockburn explains: “There has been a huge recovery in valuation multiples and some recovery in earnings, but the net result has been a big rerating of these types of companies. We think the rerating has probably gone far enough for the time being.”
Changes to the portfolio are always driven by individual stock valuation.
“If we see for example GlaxoSmithKline go from £11.50 to £10.50 and nothing has changed in the earnings or portfolio story of the stock, we will buy more of it,” Cockburn says.
“The portfolio is dictated by share price and events in terms of newsflow affecting the share price.”
The manager believes investors are attracted to All Companies funds because, with over 300 vehicles in the IMA sector, it offers a wide range of investment styles and approaches.
Cockburn also says UK equities are currently one of the cheapest asset classes.
“They are not only cheap relative to other geographical equity markets but also compared to other asset classes,” he says.
“Cash is giving you next to nothing, sovereign debt looks completely mispriced in a lot of cases with yields being too low, and property is illiquid.
“This means UK equities, from a peer group perspective compared to other asset classes, look very attractive.”
Cockburn believes he can sustain fund performance in future.
He says: “Some of the areas that we are finding value at the moment are out of favour, but I will continue to add names where I think there is value.
“If you are too early and the names remain out of favour then you buy more of them as long as nothing has changed in terms of the investment case.”
