Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The objective of UK Alpha Plus is to generate strong alpha for investors utilising our Quality at a Reasonable Price (QARP) investment style. QARP is focused on investing in high quality businesses at attractive valuations. QARP is implemented through a concentrated portfolio structure of 30-35 holdings with little commonality with the benchmark and high active share.
Our Investment process consists of three pillars: Fundamental, Thematic and Quantitative. First and foremost is our Fundamental approach focused on QARP, that is investing in well-managed franchises which have good long-term returns on capital, are highly cash generative and have the pricing power to preserve margins. We apply a disciplined valuation framework focused on value creation and cash returns. Secondly, we invest in structural themes, seeking multi-year investible change that has the ability to reshape growth and return prospects. Lastly, the quantitative side is driven by a multi-factor quant model used as a cross-check of existing as well as potential new holdings. This provides both objectivity and consistency to our process.
The combination of our quality framework and thematic approach means sustainability is integrated into our investment process as illustrated by our top decile Morningstar ESG ranking.
The Fund is managed in a co-manager structure by Nick Kissack & Bill Casey who have approaching 35 years combined industry experience
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
In 2020, the merits of Quality at a Reasonable Price have shone through, allowing us to outperform the benchmark significantly over this period. This was a good proof statement for the QARP style and the three pillars of our investment process, as we managed to generate alpha in both a growth and value-led market regime
Throughout the pandemic, various attributes have been paramount for a business to have. Fortunately, they are common attributes of QARP stocks - namely, market share leadership, structural cost advantages, reputable brand equity, and strong capital structures. Pleasingly, the volatility of the pandemic allowed us the opportunity to scale deeper into some of our core holdings
Furthermore, we believe the pandemic has acted as an accelerant for these trends and bodes well for the long-term prospects of the QARP-led strategy employed in UK Alpha Plus
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We invest in businesses which can sustainably compound their investments to create long-term shareholder value. From a sectoral standpoint, we are invested in both the Mining and Life Insurance sectors which generate sustainable returns above their cost of capital. This is in contrast to the Banking and Oil sectors where we have a zero weighting. Over the pandemic, the Life Insurers have been able to maintain dividends whilst the regulator halted Bank payouts. With regard to the Mining sector, the sector enjoys an oligopolistic market structure, superior margins driving above-average returns on capital and are highly cash flow generative. Coupled with this, the sector is a key beneficiary and enabler of the global push toward decarbonisation - for example, the average electric vehicle requires four times as much copper as a traditional internal combustion engine. In contrast, the Oil sector faces very strong headwinds from decarbonisation and electrification
From a thematic perspective, we are invested in the Packaging companies enabling plastic replacement, Healthcare and Insurance businesses benefiting from global ageing, Construction businesses enabling green investment and Consumer businesses benefiting from growth in the emerging market consumer.