Unicorn Asset Management | Outstanding British Companies Fund

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  • 07 mins 29 secs
Chris Hutchinson, Director and Senior Fund Manager, Unicorn Asset Management, discusses the 5 key points used to decide if a company is suitable for the Unicorn Outstanding British Companies Fund, the difference between value and growth and the UK market.

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Unicorn is an independent specialist from management business. We focus exclusively on investing in uk equities. It is long only if we have high conviction in approach to allow airport furthers on. We tend to invest for the long term. We currently manage around a billion pounds of assets on dh. We are very much focused on the mid too small a smaller end of the uk equity markets have standing british companies fund, i guess, represents the purest form of what the unicorn philosophy ears. It is very high conviction in nature with only thirty holdings currently, it is very long term in its investment horizons. Typical holding periods are at least five years. Many of the businesses held in the fund have bean there from the from the launch of the fund in december two thousand six, almost twelve years. Andi, it's traditional fundamental bottom up stop picking that is important to us when considering whether company is outstanding on dh suitable for inclusion in the outstanding british companies. Fun. I looked for five key points. Simplicity, consistency, transparency, alignment and permanent simplicity. I like proper businesses, businesses that sell products and services that had a real and tangible benefit to their customers, businesses that i can understand. They tend to operate in niche sectors. They tend to have very strong competitive advantage because they're offering specialized products or services terms of consistency. I want to know for certain that a business has a strong track record and delivering consistent earnings growth, dividend growth and, of course, protein revenue over time and then moving on to transparency. It's very important for us that we can understand the accounts that there aren't constantly cluttered with exceptionals or adjustment. A simple business tends to stick to its knitting on focus very much on delivering that earnings growth. And the way you do that really is by being transparent and to be quite and frank with you. I'm looking for businesses that under promise and over, deliver on a consistent basis in terms of alignment. We have always preferred to invest in businesses where the founders, the family the management teams own on retain a meaningful equity stake in their in their own business post. Listing that alignment of interest ensures in my mind that the management teams will be more risk averse, that they will be focusing on cash flow generation there will be able to pay dividends on a progressive basis over the long term and finaly permanent. We're not looking for businesses that grow at a super normal rate with the sole intention off attracting the attention of trade buyers or private equity. We invest for the long term. We want to be partners with those businesses over five years or more. I think it's become apparent in the two and a half years since the referendum that most global investors have shunned the uk equity market on dh. As a result, on a relative basis, i think uk equities are cheaper now, then they probably have bean for many years relative to other developed equity markets around the world that starts to make investing in uk equities look really interesting to me now. One could argue that there's still a lot of uncertainty surrounding brexit and perhaps it's a little bit early, too. Go over weight on the uk equities. But i do think that in the aftermath off a deal, whether it's a good deal or a bad deal on brexit, i think it's likely that people will start to revisit the investment case for uk equities and certainly for us on a relative basis. They're an awful lot of interesting on dh very strongly managed businesses that are looking cheaper than they have been for a long time. The technical investment horizon for outstanding british companies fund is at least five years. We manage a high conviction poor fellow of only thirty companies, andi, it's important for us to make sure we do as much due diligence before making an investment decision. So that way have the confidence that those businesses khun remain part of the poor fellow for a long time style is not a consideration for us in terms ofthe the difference between value and growth. We are fundamental bottom up stock pickers and clearly most american is we'd expect to pay a premium price for that perceived quality. However, we are not focused too much on the difference between value or growth. For us thie, outstanding british companies fund represents premium growth, but at a reasonable price. Valuations within the portfolio relative, too, on historic sense, are looking really quite interesting now on dh. That's because actually we had a very good nine months to the end of september in the fund on dh october was pretty tricky, both for market on dh for the fund itself prior to the start of october, evaluations were potentially looking, a little stretched within the fund thief all in markets. And the decline in the value of the fund over there over the course of october has actually being quite sharp had pretty quickly on dh. The fund itself, the individual components within the fund are looking on a relative basis really quite cheap in terms of my current view on the out outlook for the u. K. Clearly there's a huge amount of uncertainty. However, we are trading nation. We're a nation of shopkeepers we've been trading for thousands of years. I have no doubt that once the dust settles on this brexit situation, that actually would be back to business and as normal on dh. I do think that way often underestimate very high quality ofthe businesses across multiple sectors with world leaders in so many errors on dh. For me it's important that the government understand that the country get behind the whatever the deal ends up being on that we get back to business

 

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