Q:  Could you explain your portfolio construction principles? What is buy and sell discipline?

A: Because of the size of the fund, we like to keep the exposure to our circa 75 stocks relatively equal. We wouldn’t want anything to be less than 1% of the portfolio to have an impact, and at the same time, we wouldn’t want anything to be above 4% or 5% of the portfolio. That provides discipline in terms of the technical buying and selling. If a particular share has fallen below the limit but we still like that company, then we’d probably top it up. If a share had become too big for the portfolio, then we would trim that holding.

Because this is only a 20 million pound fund currently, it is quite easy to define an idea and execute it quickly. We don’t have to phase any money into the market gradually. We usually invest when the company has been a little out of favor, although the ideal scenario would be to buy it just as people are starting to go back to the stock.

On the sell side, we don’t believe in stop losses. If a company has fallen down 10% or 15% from our original position, then we’ll reassess it. If there’s been any news or developments that have changed the case, then we’d take the losses but we don’t have automatic controls.

Q:  Can you give us some examples of large and small-cap companies that you reviewed and became part of your holdings?

A: A large-cap company would be Nestle Switzerland. We selected this company because it was a sector and quality leader with reasonable valuation, so we could sleep at night with it.

The small-cap side is probably more thematic than the large-cap side. One that’s sitting in the fund at the minute is a Swedish company called Q-Med. The company plays on demographics to some extent. Its main selling product is Restylane, which basically is a filler and a complement to Botox, so it plays the theme of the aging population that wants to maintain their youthfulness. We came across that company partly because it was a theme that we wanted to play, and partly because of a contact in Sweden who put it in front of us. When we looked into it, we thought it was excellent and we bought it for the fund.

Q:  The accounting systems of countries like South Korea can be very different from U.S. or European standards. How do you reconcile the accounting issues that impact the earnings? The P/E multiples in South Korea could be deceptively low.

A: You are right; we can’t simply compare the P/E ratio of a Korean company to the P/E ratio of a U.S. company and make the buying decision based on that information. We’ll look if the market is pricing the average Korean company correctly, and then we’ll look at the relative value within that particular market.

Q:  Could you give us a couple of examples of themes that you leveraged in the portfolio?

A: Some of our themes include renewable energy, demographics, and aging. Another theme that we’ve played is the gambling theme in Macau, a play on the growing wealth of the Chinese consumer. We looked for differences in operators and decided that Wynn Resorts had a niche position in a growing market.

Another recent example is the oil theme. During a trip to the U.S. fifteen months ago, we came across the oil drillers’ supply/demand. Virtually all of the offshore rigs in the world are being used at the minute; building them takes time and we have not seen much construction activity. That puts the owners of the rigs in a unique situation in terms of the day rates they can charge. We liked that particular theme but we actually waited for the other investors to lose faith before we invested. As I said, we have a rather patient approach and it’s only in recent weeks that we fully backed this theme.

Q:  What are your views on risk management?

A: We’ve got an in-house risk assessment team that looks at various different measures for all the funds, such as tracking errors. Our benchmark for the Global Growth fund is the FTSE All-World Index. Then I look at comprehensive risk and performance measures such as alpha and the Sharpe ratio. Obviously, fund managers should be aware of the risks they are taking but if there is ever an issue with getting close to exceeding a measure our in-house risk and performance measurement team will point this out to us.

But that would be very rare with the Global Growth fund, probably because of the common sense diversification that we use. You will never see the fund to be 30% invested in technology or oil shares.