Putting the word “dynamic” in a fund name creates a certain pressure to deliver results.
Fortunately, for Alex Savvides, manager of the JO Hambro Capital Management (JOHCM) UK Dynamic Fund, this pressure has not hampered his progress to date.
The fund was launched by JOHCM using a process Mr Savvides designed himself after several years as understudy to Mark Costar on the JOHCM UK Growth Fund.
The mandate for the fund is simple.
Mr Savvides said: “It’s a back-to-basics, long-only fund with fundamental valuations and a pragmatic approach at the heart of the process. I’m only concerned with the risk/reward pay-off for any investments I’m considering.
“I work on the basic premise that markets aren’t efficient and that you can profit from the extremities of valuation and sentiment that exist in the market.”
The fund typically runs with a fairly-concentrated 35-50 holdings.
The manager acknowledged that this could lead to additional risk if strict controls were not in place.
He said: “We’ve built a disciplined set of risk controls which, among other things, prevent me from holding any more than 6% of the fund in any single large cap company and no more than 4% in any small cap company.”
Mr Savvides enjoys looking “in the more remote recesses of the market” as this is where he believes the best opportunities often lie.
One of the rules for a company to be considered for inclusion in the portfolio is that it must either pay a dividend or be about to start paying dividends.
The manager said: “Companies should be generating enough free cash flow to pay a dividend. If a company decides to cut its dividend to zero with no clear indication of when it will recommence, it will be sold from the portfolio.”
Knowing when to sell is every bit as important as identifying tomorrow’s winners. Mr Savvides said: “If a company we own issues a profit warning, and it’s due to structural reasons, we sell. This probably means that the decision to buy was wrong in the first place. If it’s due to cyclical reasons, we will be more tolerant.”
The fund delivered a return of 38.4% in 2009 compared with a return of 30.1% from FTSE All Share Index.
Barry O’Neill is a chartered financial planner with Thomson Shepherd and can be contacted on Aberdeen (01224) 619215.