“We're not very early adopters. Having said that, we do try and get into stocks early and we have a successful record in doing that,” says Sharon Bentley-Hamlyn, co-founder of Aubrey Capital Management and lead manager of the firm’s European Conviction Fund.
Ms Bentley-Hamlyn has had a rather unusual career history for someone involved in the world of finance. Having trained as an opera singer, she joined Crédit Commercial de France, where she held the role of analyst in the firm's mergers and acquisitions division. Maybe it’s something about Sottish-based boutique asset managers as Dr Paul Jourdan, founder of Amati Global Investors is also a professional violinist, again a rather unusual change in career.
Regardless of her background, there’s no getting round the sheer quality of Ms Bentley-Hamlyn’s stock picks, the fund is in the top three European equity products available and investors should be thankful they’re allowed access to the product at all.
The fund was managed as a segregated mandate for a philanthropic foundation for a decade before being opened up to a broader investor base just last year. Some might say that’s rotten timing given the impact Covid has had on the markets this year but as Ms Bentley-Hamlyn observes, the strategy hasn’t changed since its launch in 2008 and the fact it has performed well during this torrid time is perhaps routed in the fund’s DNA.
So what screens are applied to such a vast investible universe to get to the funds 34 stocks? The ‘rule of 15’ is important, holdings must generate a return on equity, a cashflow return on assets and earnings per share growth of 15 percent each before being considered for the fund. Also the favoured valuation metric appears to be price-to-earnings growth (PEG) which is limited to 1.5-times. However, given that many of the fund’s holdings aren’t covered by the big brokers who provide EPS forecasts, how does Ms Bentley-Hamlyn get the relevant information to find out a company’s PEG?
“We speak to all our investee companies at least twice a year to build a picture with our discussions with management as to what the sales growth and margin is like. So we build our own forecasts,” says Ms Bentley-Hamlyn.
In fact the team meets with over 500 companies a year deciding whether they are a suitable addition to fund or perhaps remain so.
While the fund didn’t have to engage in much heavy lifting when Covid hit, this is to say drastic overhauls of the portfolios which hurt the end investor in the form of transaction costs, some holdings did have to go. Firms involved with bricks and mortar were an obvious casualty of Covid and the fund sold social housing provider MJ Gleeson and university accommodation provider Unite
An inspired addition to the portfolio was made in June this year in the form of Gamma Communications. This AIM-listed stock (despite having a market cap of £1.4 billion) epitomises the new normal we find ourselves in. Already a strong growth trend, the pandemic has hastened more organisations in their shift to embrace cloud flexibility and cost efficiency and Gamma should increasingly emerge from under the investment radar, seeing its share price rise. It’s not cheap, trading on around 29 times consensus 2021 earnings of 52p per share but given the growth opportunities it’s this type of stock that Aubrey’s European Conviction Fund excels at finding.
Another example which perhaps underlines Ms Bentley-Hamlyn’s comments about not wishing to be early movers was the fund’s purchase of video game producer Team 17 in August. The company was greeted with raucous fanfare when in floated in 2018 but like many successful IPOs sometimes the initial share price rally stalls then goes into a dramatic reverse.
Again, an AIM-listed stock but one which has been a direct beneficiary of the pandemic as if stuck at home playing video games seems an apt way to pass the time and this has been reflected in the firm’s share price, revenues and all other key metrics to indicate success. Ms Bentley-Hamlyn doubled down on her video game exposure by adding Codemasters to the fund in the same month, another award-winning game producer ideally suited for these times.
“We don't buy loss making companies unless we can see a very clear path to growth over the next two years,” says Ms Bentley-Hamlyn. With an almost Midas touch of picking stocks that seem ideally suited for the times we are living in (remember she has been at the helm since the financial crisis of 2008), investors should allow for a trip to the unknown as doing the analysis in-house means that the holdings are almost certainly better from a valuations perspective than the known growth names.
For investors looking for a fund that is as far from the index as it’s conceivable to be and also delivering great alpha, this product certainly ticks a lot of boxes.
Aubrey European Conviction Fund LU1964542093
Fund size £23.14 million
Fee 0.65 percent
Top holdings: Hypoport, MIPS, netcompany
To read about this fund click here
