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Why SVM Manager Avoids Retail and Financials

VIDEO: Colin McLean, co-manager of the SVM UK Growth fund, talks Morningstar's Holly Black about why it's important to track trends

Holly Black 15 August, 2019 | 12:07AM

 

 

Holly Black: Welcome to the Morningstar series, "Why Should I Invest With You?" I'm Holly Black. With me today is Colin McLean. He's co-manager of the SVM UK Growth Fund.

Hello.

Colin McLean: Hello.

Black: So, what does your fund do?

McLean: The invests in UK companies, mainly in mid-caps, so it's not in the very biggest global companies, with a growth orientation. So, there's a particular type of company we're looking for. And the way we do that is by having regular meetings with them, and really trying to not only understand the numbers, but understand strategy.

Black: So, the UK isn't really a place I associate with growth that much at the moment, there's so many challenges.

McLean: Yes, and it's been interesting that despite the weaker performance we've had from the economy overall in the second quarter, that a lot of companies are actually doing quite well. The UK is good, quite a lead in some areas of services and financial services, design, and they also in some engineering areas as well. So, we find quite a few companies that have and edge globally, not just the big names like the Fever-Tree, and others that are reaching out globally, but quite a few other less well-known ones that are really our European or global leaders.

Black: And you're quite trend-focused in your investment process, aren't you? Why is it that you're trying to look for trends?

McLean: I think often if companies are riding a fair wind of either change in tastes, or perhaps some regulatory change that's driving it, then it does give them an opportunity for growth against a flatter economic background. Also, a lot of the growth areas are emerging between other areas. So, there may be new segments that are coming along some of these segments like student accommodation, or legal services or others. There are things that if you just took a very traditional approach to the indices and the economy, you would miss what was happening with some of these sectors.

Black: So, what are couple of the most exciting trends that you're tracking at the moment?

McLean: I think in the fund they separate out into quite a lot of different sub-sectors. But some of the companies, AB Dynamics being one, which is an automation measurement, is something of a global leader in its area. And we quite like companies where it's being driven by regulation, serving very large customers, quite high margins, very much in control of its own destiny. So, that would be a segment that we quite like.

Black: And the trends work the other way as well. You see maybe industries that look like they are on the way out.

McLean: That's been very much the case in, say, in the high street with retailing, and it's really best not to stand in the way of that. So, we tend to think that although a lot of the, say, retailers can spend good stories on how they might reinvent themselves or resolve things, once they've seen that sort of attrition and change in taste, it's quite difficult to reinvent. So, there's a number of sectors that we just steer clear of. We don't have quite so much in the large financials, either of the big banks. I think they're being disintermediated, competed away as well.

Black: Well, thank you so much for your time.

McLean: Thank you.

Black: And thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
SVM UK Growth Retail455.63 GBP0.76

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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