LF Majedie UK Equity – October 2020 fund update

Dominic Rowles | Wed 14 October 2020

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• This fund's unique structure combines the best ideas of four fund managers, whose strengths and styles are carefully blended together
• The managers have added to investments in companies they think have the best potential to recover as the country emerges from the coronavirus pandemic
• They have a good long-term track record, boosted by the managers' ability to select companies with outstanding prospects
• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits into a portfolio

The best ideas of an experienced team, combined with a willingness to invest differently from the herd, makes the LF Majedie UK Equity fund stand out from other UK growth funds. We think it's a good all-rounder for the UK part of a portfolio. It could also sit well alongside other funds that invest more overseas.

Manager

This fund is managed by a team of four, each with their own strengths, styles and areas of focus.

James De Uphaugh and Chris Field have invested in UK companies for more than three decades and built an impressive knowledge of the UK stock market over that time. They were both founding members of Majedie Asset Management and have served as co-managers on this fund since launch in 2003. Imran Sattar joined the team in 2018 and has more than two decades' experience in UK equities. The trio are each responsible for 30% of the portfolio, and primarily focus on large and medium-sized businesses.

John King joined Majedie from AXA in 2019. He is responsible for 10% of the portfolio, and focuses on higher-risk smaller companies.

While there have been some changes to the team in recent years, we are encouraged the two longstanding fund managers remain central to the investment strategy and are dedicated to Majedie. Following a recent meeting with Sattar, we feel he's got his feet firmly under the desk, and has made his portion of the portfolio his own. We also think his approach blends well with the styles of the other managers.

Process

The team uses a flexible investment process on this fund. Each manager is free to invest according to their own strengths and investment styles, which are carefully blended together. That means the fund provides exposure to more established businesses that have grown profits consistently over time, as well as those that have been overlooked by other investors but are capable of recovery.

The team uses a range of tools when generating investment ideas, including in-house systems and technical models perfected through decades of experience. They regularly meet with company management too, probing them to glean insights that aren't available through the report and accounts. The team also spends time thinking about how economic changes can impact their investments, and this is built into their analysis.

The managers have recently focused on buying shares in high-quality businesses that have the financial security to persevere through the coronavirus pandemic and the potential to recover quickly when it's behind us.

Diageo is an example. The company owns a number of well-known alcoholic drinks brands including Johnnie Walker and Smirnoff. They believe the business has high barriers to entry from competition and the ability to raise prices without impacting demand for their products. Although the pandemic and subsequent lockdown hobbled alcohol sales in bars and restaurants, sales through supermarkets have been strong. Stock market volatility allowed the managers to buy shares at what they believe to be an attractive price, and they think the company can continue to grow strongly from here.

In contrast, the managers sold an investment in pharmaceutical company GlaxoSmithKline. They think it's too early to tell if the company's aim to reinvigorate their research and development capabilities will prove successful, and prefer to access the pharmaceutical industry through other investments in AstraZeneca and Roche.

Culture

We like the fact the managers are focused on company analysis and fund management. Other administrative, compliance, and marketing tasks are carried out by other teams at Majedie, and we think this support is a bonus.

Each permanent Majedie employee owns shares in the business. We think this helps employees think like business owners and incentivises them to work hard, for the good of the business and its clients. It also ensures that decisions are taken with the long-term health of the business in mind. The fund managers invest a significant amount of their money in their own funds and we think the structure of their incentivisation should mean they stick around for the long term. That said, there have been some departures from the team in recent years, so we continue to monitor this closely.

Another key part of the Majedie culture is 'responsible capitalism'. The team uses its right to vote at company Annual General Meetings (AGMs) and actively engages with the companies it invests in to push them to be the best they can be across every aspect of their business.

Cost

This fund's annual ongoing fund charge is 0.65%, but after a 0.10% saving it's available at 0.55% through the HL platform. The saving is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The fund's performed well over the long term, considerably outperforming the broader UK stock market, although past performance is not a guide to the future. Our analysis suggests the managers' ability to select companies with outstanding prospects has boosted performance, regardless of what size they are or sector they're in. Their stock selection has been particularly strong amongst larger firms and companies in the financial sector. They've also added value by investing in strongly-performing areas, such as the industrials and technology sectors. Like all investments, the fund can fall as well as rise in value so investors could get back less than they invest.

2017, 2018 and 2019 were tougher years for the fund's performance. The managers' focus on companies overlooked by others but with the potential to recover held back returns as this investment style remained out of favour.

The fund's performance has historically tended to hold up a bit better than the broader UK stock market when it falls, and this was the case over the past year. The fund beat the UK stock market by 2.7%*, although it still lost money. Some of the fund's strongest performers over the period included consumer goods giant Unilever and premium mixer drinks business Fevertree. Oil & gas companies Royal Dutch Shell and BP were among the fund's weaker performers.

Past performance isn't a guide to the future. Source: *Lipper IM 30/09/2020.

Please note this fund currently holds shares in Hargreaves Lansdown PLC

Find out more about LF Majedie UK Equity including charges

LF Majedie UK Equity Key Investor Information