Paterson uses a fairly informal process to run this fund. The fund’s positioning can be influenced by both top down and bottom up factors, and he gets investment ideas from a variety of sources, including broker research, the financial press, and other managers at Artemis. In general, he likes cash generative companies which have strong business franchises. He also likes to see businesses with high o
r growing margins but which also have barriers to entry to prevent competition eroding those margins.
Once he finds an idea that warrants further investigation, Paterson will meet with company management, particularly for those stocks further down the market cap ladder. In these meetings, Paterson tries to assess the managers’ skill and evaluate the firms’ prospects over the next 2-3 years and then cross check his findings with analyst reports. Paterson places a great deal of weight on his discussions with firm managers. In fact, he generally avoids buying a stock without meeting company management beforehand, except for those blue-chip companies which are already heavily researched. Moreover, Paterson will back managers that he has some familiarity with and have a proven track record in turning companies around. The holding in Booker Group, the wholesale retailer, is an example. Charlie Wilson, CEO of Booker, has previously worked alongside Stuart Rose in helping the fortunes of BHS and Marks and Spencer’s - Paterson thinks Wilson has the skills to turnaround Booker too by cutting costs and paying down debt.
But while there’s nothing particularly wanting about Paterson’s approach, it’s not distinctive either. Placing a great deal of emphasis on company management isn’t anything new, nor is a strategy that focuses on competitively well positioned firms that generate cash. Nor has the fund distinguished itself from a performance perspective. Since Paterson took the helm of this fund at the beginning of September 2002 returns have been lacklustre. The fund’s returns have fallen just shy of the FTSE All Share benchmark from September 2002 to the end of August 2008. Given that Paterson is using a strategy which is unconstrained by market cap and style, we find these results disappointing.
Another potential concern is that Fortis--Artemis’ majority stakeholder--has put the firm up for sale. While Artemis has done a good job of maintaining it’s autonomy under Fortis, the change of ownership remains an overhanging uncertainty here. That by itself isn't enough to sway us against Artemis funds, but it's a situation that's worth keeping an eye on.
