Caspar Trenchard took charge of this fund on joining Standard Life in August 2007, but his association with the UK equities team spans way back to his time in institutional sales. His tenure at First State as manager of the First State British Opportunities fund was relatively brief, but in the two years he ran the fund (August 2005 to July 2007) he delivered good performance in both absolute and relative terms. Returns clocked-in at 23.2% per annum on an annualised basis – that is 7.4 percentage points ahead of the average fund in the Morningstar UK Mid-Cap Equity category.
Trenchard has had a tough act to follow. Previous manager Mark Niznik ran UK Opportunities from launch in 2
002 until mid-2007 when he left to join Artemis. Under his watch, the fund delivered an annualised return of 29% per annum, outperforming relevant benchmarks and its peers. Since taking the helm, Trenchard has introduced a new stock picking process to the fund. The fund’s investment universe remains the FTSE All Share ex-FTSE 100 stocks (as before, however, up to 10% of the fund can be invested in FTSE 100 issues). But unlike Niznik, the manager is running a core and satellite approach. The former typically includes companies for which he is prepared to pay a premium: those featuring strong growth prospects, excellent track records, long-term successful franchises, proven management and strong balance sheets, and this is reflected in the fund's valuations, which are all above the Morningstar UK Small Cap Equity average. These account for approximately 75% of assets and the manager aims to hold them through time until they have achieved their full growth potential. He uses the satellite "tail" to tactically exploit shorter-term opportunities. With this segment of the portfolio, he's less willing to pay premium prices, and is quicker to cut stocks that disappoint.
Trenchard’s style has meant a pronounced shift in the portfolio’s shape over the last 12 months as he fishes for opportunities at very different points on the valuation and market-cap scales than Niznik did. Trenchard usually finds most of his core stock ideas are mid caps as it is typically these companies that meet his buy criteria. Smaller-cap, more speculative picks are held mainly in the satellite portion. Another change is a growth tilt to the portfolio, which owes to the manager’s emphasis on quality and growth and lower degree of concern with valuation levels in the core of the portfolio. Investors be warned, though: the fund’s tilt to pricier growth stocks adds price risk into the equation. Hardy Oil & Gas, for example, trades at 60 times last year’s earnings, implying very high growth expectations, which can cause share prices to plunge quickly if they fail to materialise.
Trenchard is off to a promising start given market conditions. Moreover, we are encouraged by the back-up he enjoys from the UK small-cap equity team, headed by Standard Life veteran Harry Nimmo. However, while his extensive industry experience is relevant, his prior experience running money is fairly brief and we need to see more of what he can do for this fund to fully earn our nod.
