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 FP Octopus UK Multi Cap Income Fund targets an attractive yield of 4% while also seeking better than market capital growth. By taking a multi-cap approach, the fund can select opportunities from across the entire UK equity market, with a bias toward faster growth, progressive, small and medium-sized companies. The fund complements more traditional UK equity income funds.
This fund isn't constrained by investing in any one part of the market. Instead, we look to assess business from across the market cap range on three key characteristics:
- the ability to deliver faster than market earnings growth,
- the ability to deliver faster than market dividend growth; or
- the ability to deliver a dividend yield in excess of the wider market.
This differentiated, multi cap approach gives us the opportunity to buy potential equity income stars of the future, before many more traditional income funds would consider them - whilst also holding some more traditional dividend-paying stocks.
Lead manager of the fund is Chris McVey and he is backed by the Octopus Quoted Companies Team. They are a 9 strong, highly experienced investment team with a proven performance track record. The team has a fundamental, bottom-up investment philosophy and attend over 800 company meetings a year to identify the best investment opportunities. The average tenure of the team at Octopus is 11 years and they manage over £2.6bn in Quoted companies across AIM VCTs, AIM Inheritance Tax products and two OEICs: the FP Octopus Multi Cap Income fund, and the FP Octopus Micro Cap Growth fund.
How are you positioning your portfolio to prepare for the global recovery from the Covid-19 pandemic?
Whilst the pandemic has been an extremely challenging trading environment, we have been hugely reassured by how the majority of fund holdings have navigated the last year. As we look forward, we remain of the view that the UK is well set from a valuation perspective, particularly when compared to other developed equity markets. We also suggest that the UK consensus estimates remain prudent, a view that is evidenced by the regular earnings upgrades that have been a feature of many of trading updates over recent months.
Our ethos is based on building a portfolio that is capable of growing ahead of the market through the cycle. By focussing on these progressive, faster growth businesses, we believe the fund is set for an exciting period as synchronised global growth takes hold post pandemic.
We haven't made any significant changes to our portfolio positioning as a result of the pandemic. We continue our strategy of assembling a core portfolio of quality companies, with superior prospects for growth, appropriate balance sheets and quality management teams. We remain excited by the fund positioning as we (hopefully) put the pandemic behind us.
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 for example
We take a 3 to 5 year view when investing in the core of our portfolio. As I said above, we have not been chasing themes, or changing our investment style, as a result of an anticipated recovery. However, we have numerous exciting investment opportunities across the Fund on this basis.
Core positions include MJ Gleeson, the constructor of quality, affordable homes, often in areas undergoing social and economic regeneration. With an average selling price of £140k, these homes are affordable enough to be sold to a couple on National Minimum Wage - this business plays into a number of themes including the government's levelling up agenda. We were attracted to this business by its unique market positioning, fantastic customer economics, and obvious social benefits. The management have a stated mid-term objective of building 2000 homes by FY22. However, with the business infrastructure in place, and an experienced and ambitious management team, we see the potential for a much larger operation. 2021 has started well, with the company recently announcing that full year results to the end of June 2021 would be ahead of previous market expectations.
Other opportunities include Strix, the global leader in design and manufacture of kettle safety controls with a fantastic c57% global share. This provides great cash generation and underpins an attractive (c2.8% yield) and progressive dividend linked to underlying earnings growth. Management have set ambitious growth plans to double revenues over the next 5 years from organic and inorganic means. Again we have seen a good start to the year, with management recently suggesting that it anticipated delivering earnings growth of circa 30% during 2021. Another exciting growth opportunity over the next 3-5 years.
Finally I would highlight Renew Holdings, a specialist UK engineering services business focused on key infrastructure sectors such as Rail, Infrastructure, Energy and Environmental. The business focusses on long term maintenance and renewal of critical infrastructure networks. Again plays well for some trends such as likely increased government infrastructure investment in coming years. These regulated markets in which they operate have long term spend programmes and high barriers to entry. The business continues to grow through both organic and acquisitions, and recently announced another record set of interim results. Paying a 2.5% dividend, again progressive as underpinned by strong earnings growth. Again a high quality business with great fundamentals, and again will continue to progress significantly over the medium term.