fundtruffle

Havelock has a winner

David Stevenson, 04/08/2021

In 2017 two men met at their respective children’s school and so began the formation of Havelock Asset Management. Four years on and with their flagship fund, the LF Havelock Global Select fund literally days away from its three-year milestone, the founders discussed the firm’s ethos and strategy with Fundeye.

Firstly, since inception the fund has pummelled its benchmark into submission, as Neil Carter, chief commercial officer and co-founder, says beating the MSCI World Value index by “teens of percentage points”. Despite being at an early stage, the fund drew attention from Refinitiv who interviewed CEO Matthew Beddall for the company’s fund manager chats at a time described as BF (before furniture).

More recently, fund manager rating site Vadevalor picked out Mr Beddall as emerging talent. This is a rating given to those who despite not having a three year track record, the minimum for their usual ranking criteria, is one to watch. Read more about Vadevalor here.

“We were the first fund group to achieve authorization through the FCA asset management authorization hub,” Mr Carter says, referring back to an initiative by the UK financial regulator following their 2016 asset management review.

When it comes to the state of play when Havelock entered the market, Mr Carter says that the industry was going through a phase of ‘significant consolidation’ which he describes as ‘product proliferation’ being ‘masqueraded as innovation’.

The charge that some of the major fund groups launch funds that can be described as ‘index plus’ at best is not new but in this environment an opportunity for a boutique firm launching genuinely innovative products seemed one that should attract attention.

The timing of Havelock’s Global Select fund was a tad unfortunate putting it mildly. Raising assets in a­ Covid-stricken market whereby face-to-face meetings were out of the question may have caused some to abandon the cause.

However, just under three years since launch the fund’s assets under management have tripled and for a boutique firm in this black swan market is no mean feat. Luckily some wealth managers saw the success and perhaps the potential of the fund, with one adding it to a MPS which aided the asset raising process.

Differentiators

Havelock uses its own proprietary software which Mr Beddall uses to perform all the research to make his, up to now, successful stock picks. While fund managers usually state obvious metrics such as return on equity which they use to narrow down the huge number of companies available globally, the firm also has some interesting sector specific areas it uses to screen companies.

For instance, in the retail space, Mr Beddall likes to see the amount of sales made per square footage of the property where the business operates. In this unfriendly environment for physical retailers due to the encroachment of online equivalents, the idea to see how profitable a business is compared to its geographical footprint is a great touch.

Fundeye was shown how the software works including notes kept by Mr Beddall on companies’ results and even a traffic light system to warn him if he’s getting behind on following one of his picks. The manager mainly has information on those companies in his portfolio but also has a few of those on his watchlist, firms that are on the cusp of being included in the high conviction portfolio but not quite there.

Mr Beddall spoke about a cattle feed company, Wynnstay, which saw its share price collapse as due to an unusually warm winter, farmers didn’t need the company’s product as there was an abundance of naturally available food. Described as ‘short termism’, the market reaction did not sit well with the CEO so he decided to take a position in the company at this discounted price. Since then, the share price has more than doubled, giving some insight into how the firm looks at the market.

Another company mentioned is the upmarket office chair manufacturer Herman Miller, which is described as ‘boom and bust’. This is because when the economy is on the ascendancy, companies can afford to splash out on luxury goods such as fancy chairs (some of which cost around £1000) although during a downturn spending is cut and so is demand for Herman Miller’s goods.

What the screenshots of the firm’s software showed was one way they valued this company. It displayed a range of metrics including return on equity, payout to common shareholders and price-to-book. There is a box included in the various graphs with a range of figures between best and worse case scenarios, with the base case at the centre.

Mr Carter describes the system as “a probabilistic forecast which is always a number plus or minus a range”. When a company’s valuation has shot through the most optimistic valuation it’s time to take profit although the firm will continue track the company.

For a high conviction fund of just 35 holdings, the turnover rate per annum is expected to be low and Mr Beddall says the target was around 20 percent although this obviously increased given the market mayhem of the last year and a half. The firm has further concentration in its top five holdings accounting for 26.7 percent of the portfolio. This said, all these stocks have achieved double digit growth in a year, with the top two, Berkshire Hathaway and Brewin Dolphin appreciating by 41 percent and 36 percent respectively.

Mr Carter describes Havelock as being a quality value player, adding that a “great business doesn’t necessarily make a great investment”, a reference to the US tech giants that are now trading on extremely racy multiples.

Given the performance of this fund, the FCA approval, a good rating on Refinitiv, the acknowledgement by Vadevalor and also being ranked highly by fund consultancy Square Mile, all in it shows that if the product’s good it’s hard to stop it succeeding. Even if the world seems intent on doing so with global pandemics.

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