UK investors in shares are somewhat nervous about prospects for their home market.
Kevin Murphy, joint manager of the Schroder Recovery fund, believes that recent weakness means he now has a wider spectrum of companies in which to consider investing.
He said: “We invest on the basis of only trying to buy cheap companies because over time that tends to deliver results. We do the necessary homework so that, when we invest, we do so on the basis that it’s heads you win, tails you don’t lose.
“A lot of the research we do is about understanding the negative pressure points of a business. We don’t want to lose our investors money. With 700 companies in the FTSE All-Share, we invest in around one in 10.
“Our starting point when considering a company is: ‘Can we double our money over a three-year holding period?’ The stock market hates uncertainty and always fears the worst. It sells businesses that it thinks are exposed, regardless of whether they are in reality. As a former analyst, I’m prepared to do the spade work to really get into the nuts and bolts of a business. My co-manager and I are well versed in interrogating company balance sheets, which is just as well because some of the companies we invest in are not covered by any analysts.
“In 2008-09, there were some eye-watering generational opportunities as a result of the mass selloff. Although there has been a recovery since, the recent weakness has helped identify some great bargains if you’re prepared to invest for three to five years.”
AstraZeneca is a great example of the type of holding Mr Murphy looks for.
He said: “Ten years ago it was a loved company, but was too expensive.
“Now, it has no debt, a dividend yield of over 5%, a new management team and sufficient cash flow to be able to buy back its entire market capitalisation over six to seven years if it wanted to.”
Over the past 12 months, the Schroder fund has delivered a return of 22.7% compared with 19.9% from the UK all companies sector.
For more information visit website www.schroders.co.uk or call 0800 718 777.
Barry O’Neill is a chartered financial planner with Thomson Shepherd and can be contacted on 01224 619215