Odey Opus – where others fear to tread

Kate Marshall | Mon 14 October 2019

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• Crispin Odey is a natural contrarian and prepared to take a different view of the world than most investors
• A value-focused approach has held back performance in recent years
• We view this fund as a more adventurous option in the IA Flexible Investment sector

Our view

Crispin Odey thinks differently from most other fund managers and isn't afraid to back his convictions. He's prepared to make some big investments in his LF Odey Opus Fund, and move it around quickly when his views change.

Odey's a contrarian investor and focuses on undervalued companies that’ve been overlooked by other investors. His value-focused approach has held back performance in recent years, though he's made some big calls in the past that have ultimately gone on to produce good results.

The manager mainly invests in company shares, but he has the flexibility to invest in other assets like bonds, cash or commodities. He might invest more in these areas if he has a more cautious outlook or doesn't think global stock markets offer enough growth potential. He can also invest in derivatives which, if used, adds risk.

We view this fund as a more adventurous option in the IA Flexible Investment sector. We think it has the potential to do well over the long run, though it's not currently on the Wealth 50. It's an expensive fund and we think there are others in the same sector, or that invest globally, which have the potential do well at lower cost.

Argentine banks hold back returns

A number of investments in the fund are a great example of Odey's high-conviction, contrarian investment approach. Take his investments in Argentinian banks. He currently invests in Grupo Financiero Galicia and Banco Macro, which together made up over 10% of the portfolio at one stage.

But their share prices recently fell heavily. Argentina's economy has been in crisis and its banks have taken a big hit. Odey thinks investors' concerns have been overplayed though. Banks typically pay interest on the deposits customers place with them. But this isn't the case with a large chunk of Banco Macro' s deposits. It also earns a significant amount of interest on the money it lends to the government. It could benefit even more as the Argentine central bank raised rates rose to a stunning 78% in September.

Odey expects the bank's profits to rise significantly this year. He also thinks there will be a resolution to Argentina's woes over the next few months, which could provide a supportive backdrop for the banks. These investments have been painful in the short term though and held back the fund's performance.

Elsewhere, the manager thinks there's plenty of value on offer in the UK, so he's invested more here than most of his peers. He recently added to investments in electronics retailer Dixons Carphone and car retailer Pendragon.

The latter has been painful over the past year, but Odey thinks there's light at the end of the tunnel, especially now the business has replaced two poor CEOs. The new CEO has since sold its US business and some UK sites, and Odey says the company is in good financial shape and expected to make a decent profit next year.

Overall he invests in companies of all sizes, from global juggernauts to higher-risk smaller businesses with superior growth potential. He can also invest in unquoted companies. Unquoted companies are those that don’t trade on any stock market, so it’s particularly difficult to buy and sell positions in them. Their less-liquid nature makes them higher risk.

Biotech business Oxford Nanopore is currently the only unquoted company in the portfolio, making up 3.4% of the fund. However, Odey intends on reducing this investment over the coming months and overall we expect the fund's exposure to unquoted companies to come down over time.

How's the fund performed?

Odey has a good long-term track record. He's outperformed both the broader global stock market and average fund in the IA Flexible sector since the fund launched in August 2001.

The fund tends to look quite different to its peers and the market though, which means performance is also likely to look different. We think this could boost long-term performance. But he won't always get it right and the fund has seen prolonged periods of underperformance at times. Please remember past performance isn't a guide to future returns.

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2019.

Find out more about the fund including charges

LF Odey Opus Key Investor Information