TM Sanditon UK – ready for a tougher environment

Dominic Rowles | Fri 28 September 2018

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• Julie Dean thinks we’re approaching the end of the business cycle
• She’s invested in companies undervalued and overlooked by others
• Fund was removed from the Wealth 150+ in July after we lost conviction in the manager

Julie Dean’s investment process is unique. She tries to understand where we are in the business cycle and invests the TM Sanditon UK Fund to benefit. She usually invests in companies sensitive to the health of the UK economy when it’s expected to grow and more defensive areas during slowdowns.

But she can be too early in making these calls and this has been the case since the fund’s launch in June 2015. That’s led to some disappointing performance.

Our analysis suggests her investments have performed less well than those of a similar size and in the same sectors. This caused another drag on returns.

We removed the fund from the Wealth 150+ list of our favourite funds in July 2018. Julie Dean is an experienced manager and her fund could do well in the long term. But we currently have higher conviction in other managers investing for growth in the UK market. Our favourites can be found on the Wealth 150+.

All funds can fall as well as rise, and you could get back less than you invest.

Read the full removal note

Past performance is not a guide to the future. Source: Lipper IM to 31/08/2018.

n/a* - Performance figures prior to this date aren’t available

Manager’s outlook

Julie Dean thinks we’re approaching a tougher environment.

Economic growth is slowing and inflation and interest rates are on the rise in lots of the world’s major economies. The US is the only major economy that’s still growing strongly. But the manager thinks there are signs that US growth could slow down in the medium term too.

At the same time, companies with strong growth potential, like those in the technology industry, have been extremely popular with investors. The manager thinks this has pushed their share prices to unsustainably high levels: another sign we’re reaching the end of the business cycle.

How is the fund invested?

Julie Dean has the freedom to invest in companies of any size, including higher-risk smaller companies. She’s focused on companies unloved and undervalued by other investors but with predictable cash flows and the potential to recover. She thinks their low valuations should mean they won’t fall as much if the broader UK stock market performs poorly.

That includes mobile phone operator Vodafone. The company recently acquired Liberty Global’s operations in Germany, Czech Republic, Hungary and Romania. Lots of investors are worried it will be difficult to integrate the two companies. Especially at a time when CEO Vittorio Colao is about to leave the business. The manager recognises these short-term issues but thinks the deal improves Vodafone’s long-term growth potential.

She’s also invested in companies reliant on UK consumer spending. Lots of businesses in this area have had a tougher time recently because of concerns that Brexit could cause people to save their money, rather than spend it. But Julie Dean thinks some can survive and deliver strong returns over the long term.

An example is broadcaster ITV. The company’s performed poorly because of the effect slowing consumer spending could have on its advertising revenues. But the manager is optimistic. The company reported profits that were better than expected (even excluding the effect of the World Cup) and its studio business is doing well too.

8.3% of the fund is held in cash. This gives her flexibility to invest as and when new opportunities become available.

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