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Resolution Cartesian UK Opportunities By Rob Griffin
David Stevenson and Andrew Kelly describe their fund, Resolution Cartesian UK Opportunities, as a one-stop-shop for anyone wanting exposure to the UK stock market. "We like quality stocks - regardless of their size," The objective of the fund, which was launched in December 2005, is to achieve above average returns from a concentrated portfolio of around 50 UK-listed names. Approximately 10% of its assets are currently in small-caps, with the remainder equally split between large and mid-caps. The 10 largest holdings, meanwhile, include household names such as satellite broadcaster BSkyB (BSY) and National Grid (NG-). "The important thing for us is to work out how a company's business model works, what's going to drive its growth and whether that's sustainable," explains Stevenson. The ideal scenario is buying into an undervalued stock which is eventually re-rated by the market and is then the target of a takeover approach. A great example is supermarket chain Sainsbury's (SBRY). As well as being boosted by the efforts of chief executive Justin King to revive its fortunes, the company's shares have also benefited from speculation of a bid approach from private equity investors CVC, Kohlberg Kravis Roberts and Blackstone. "It's impossible to try and second guess where the next takeover approach will come from, but if we get a bid after a re-rating then that's jam on top for us," says Stevenson. "The fund has already had a number of them." Joint venture Stevenson and Kelly run UK Opportunities under the umbrella of Cartesian Capital Partners - the joint venture set up in conjunction with Resolution Asset Management. While they concentrate their efforts on finding attractive stocks, Resolution looks after the time-consuming, day-to-day issues such as marketing. It's an arrangement Stevenson believes works well - even though they don't have access to the armies of global analysts employed by major investment houses. "Generating performance is not about providing blanket research on every stock in the universe, all of the time," he insists. "It's far better to have an investment process which narrows the universe down to a list of really compelling, must-own ideas." Boutique-style operations such as Cartesian, he points out, are in a far better position to outperform the market because they are generally more focussed and nimble. "We don't have to go through half a dozen channels before we make a decision," he says. "If we find a good idea, we analyse it, discuss it between ourselves and then act upon it. At the end of the day, if we don't perform, we don't pay our mortgage!" UK focus Stevenson believes there are plenty of reasons why investing in a fund focused on the UK makes financial sense. As well as being an international finance centre conducive to takeover activity, the companies listed here also have strong overseas interests. In fact, many of them generate a substantial amount of their earnings outside of the UK which effectively gives investors global exposure - but without the risks associated with ploughing their money into more volatile areas. "The risk-reward balance in the UK is very attractive," he explains. "You've got good, sustainable growth at valuations which still look attractive. You might get faster growth in emerging markets, but the correction in May and June last year was a wake-up call for people who had forgotten about the risks." Due to the small number of holdings, it's important the pair constantly revisit their investment decisions to ensure the fund is correctly positioned. "There are probably 1,000 companies in which we could invest, so the 50 we choose must be compelling," explains Stevenson. "As well as those stocks in the fund, we have up to 100 others under consideration." Rating The overall investment approach certainly seems to be working well. Since launch it has delivered a 34.5% bid-to-bid return, according to figures compiled by Standard & Poor's to 26 February, 2007. This is well above the 21.7% average achieved by the UK All Companies sector and means the fund is ranked 18th out of almost 300 rivals. The fund has also been given an A-rating by Forsyth OBSR. However, it hasn't got that all-important three-year track record which many people consider a prerequisite for investing. It's an issue that frustrates Stevenson who points out that the investment process is exactly the same as the one employed during his previous role at SVM. "If we could bolt our two track records together we would have almost six years of outperformance, but it's not allowed," he says. "However, although people may see us as a new name, the managers and process have been tried and tested." Stevenson sees the fund as being an ideal core holding for anyone and says the overall aim is to deliver consistent performance over the longer-term. "It's a UK all-cap stock picking fund which people should find a place for in their portfolios because its investment process isn't dependent on either the economic cycle or the market backdrop," he adds.
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