River & Mercantile UK Dynamic Equity - astute stock picking continues to add value

Dominic Rowles | Thu 23 November 2017

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• Philip Rodrigs has identified smaller businesses destined to become the market leaders of tomorrow for more than a decade
• The manager recently increased the fund’s exposure to companies with overseas earnings
• We continue to hold Philip Rodrigs in high regard and expect this fund to perform well over the long term

Fund management is awash with star names, but few investors are familiar with Philip Rodrigs. In our view, it’s a mistake to overlook him.

He has a long track record investing in higher-risk small and medium-sized companies and has added significant value investing in this area, according to our analysis. The River and Mercantile UK Dynamic Equity fund gives him the flexibility to invest in companies of any size, which means he can invest in the best investment opportunities wherever they lie. He invests in a concentrated number of investments, which means each can significantly impact performance, but increases risk.

Philip Rodrigs is a well-incentivised fund manager who also benefits from the support of a stable and experienced UK equities team. We believe a proven stock-picker managing a focused portfolio of his best ideas is an attractive proposition. We are confident about the fund’s long-term prospects, although there are no guarantees. It retains its place on the Wealth 150+ list of our favourite funds across the major sectors.

Manager’s outlook and fund positioning

Philip Rodrigs believes a combination of rising prices, sluggish wage growth and uncertainty over the potential effects of Brexit could cause individuals to reduce their spending and seek more value for their money. The fund’s investment in discount retailer B&M European Value could be set to benefit in this environment, in the manager’s view.

As a consequence of UK consumers tightening their belts, some companies could experience falling demand for their products and services. The manager believes this could create opportunity for business consultancy firms, which help companies save money by identifying ways to increase efficiency. Consultancy firm RPC Group is therefore included in the fund.

Many companies on the UK stock market earn money all around the world. Much of the portfolio is currently focused towards these overseas earners, where the manager believes the outlook for consumer spending is healthier. Building products manufacturer Ferguson, for example, operates across the UK, the US, Canada, central Europe and the Nordic countries and is one of the fund’s ten largest investments.

Performance update

Philip Rodrigs has delivered superb performance since taking over the fund in January 2016. Over this period, the fund has risen 35.2%*, compared with 28.1% for the FTSE All Share, although past performance is no guide to the future and this is only over a short period. The fund’s performance is largely a result of the manager’s outstanding stock picking, which is particularly strong in the industrials and consumer services sectors, according to our analysis.

Smart Metering Systems, the provider of gas and electricity meters, was among the fund’s strongest performers over this period. Philip Rodrigs believes the company is well placed to help meet the government’s target of equipping every UK home with a smart meter by 2020.

Past performance is not a guide to the future. Source: Lipper IM *to 31/10/2017

Please note the fund has the ability to use derivatives which, if used, adds risk.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.