Royal London UK Growth manager uses stockpicking skills to select growth opportunities across market-cap spectrum to sit top of sector
According to Morningstar, Bradley Mitchell’s £149m Royal London UK Growth vehicle, which sits in the IMA All Companies sector, has gained 56.7% over one year to 12 April compared to a sector average increase of 48.7%.
On a three- and five-year view, the fund is up 8.3% and 54.9% respectively.
The fund aims to achieve capital growth by investing primarily in UK equities. The manager uses his stockpicking skills to select growth opportunities from across the UK market-cap spectrum, building high-conviction positions at both stock and sector level.
Mitchell has 23 years’ experience in fund management, successfully heading a diverse range of large-, mid- and small-cap funds across different sectors. He joined RLAM in February 2004, becoming manager of the Royal London UK Growth fund in 2006.
Prior to joining RLAM, he spent 17 years in the UK equity teams of Morley Fund Management. The manager describes his investment style as contrarian.
“I am fairly market-cap agnostic, “he says. “I used to manage small-company funds so I am happy buying very small companies. I do not just stick to the FTSE 100 usual suspects.”
Mitchell says performance over the last three years is strong because he got the big calls right.
“I was a very early bull on mining and I was pretty cautious on the banks and on the economy as we went into the downturn in 2008,” he says.
“I got hurt somewhat by staying positive on the miners because I felt Chinese demand would continue to remain steady. This proved to be the case and obviously all the other investors ran away for about six months.”
Mitchell believes the strong returns over the last year in particular were driven by his contrarian view.
At the end of last year, Mitchell bought a lot of ENRC, the FTSE 100 Kazakhstan-based mining firms, which has performed well.
A couple of engineering companies have also been strong performers including Premier Farnell, which Mitchell says is geared into recovery and global trade volumes, and GKN, which is also exposed to the strong rebound in global automobile manufacturing.
Some of the very small companies the manager has bought have also done well.
“GTO Resources, which is a tiny ethanol-based company, has had a very strong share-price performance this year because the ethanol margins have recovered strongly,” Mitchell says.
In recent months, the manager has concentrated the defensive part of the portfolio in tobacco and pharmaceuticals.
Mitchell has also recently started to pick up some of the oversold UK consumer cyclicals.
“I think everybody has got very pessimistic about the outlook for the UK consumer, which is true, but even within this sector you can find interesting recovery stories,” he says.
Over the last three months he has bought a large holding in Northgate, which is the largest van-leasing firm in the UK.
“Northgate are in a particularly strong position because their number two and number three competitors have got major financial problems, and therefore are offering very poor competition.”
He adds: “So you can come off the recession in quite a strong position if you are operating well and efficiently and your competition are in disarray. Analysts have been a bit slow to pick up on this.”
He is avoiding what he describes as “some of the overbought growth companies”.
“People have got very excited about them but the valuation now is looking overdone. I have not got some of the highly rated support service stocks like Aggreko.”
Mitchell is also very cautious about the UK food retail sector.
“I have not got any food processing companies or beverages for similar reasons,” he says.
“Within consumer staples I like tobacco and I am avoiding the other areas.”
Mitchell is overweight financials and oil & gas, which accounted for 20.7% and 19.3% of the fund’s exposure at 31 March, followed by basic materials 14.9%, consumer goods 12.7% and industrials 9.6%.
Top five holdings are HSBC at 7.8%, BP 6.5%, Royal Dutch Shell 5.9%, GlaxoSmithKline 5.4% and Xstrata 5.2%.
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.
“I think the UK equity market offers good value. Within the All Companies universe you are able to invest into funds and companies that give you exposure to the whole world. ” he says.
“Mining is a good example; oil companies are another. So we can get overly focused on the short-term outlook for the UK economy.”
He adds: “As an asset allocator, if I am looking at gilts, bonds, property and cash, equities still looks like the best of the bunch.”
