A : We might have four or five strong themes, probably running on a particular central theme. Elsewhere, there could be things like whether value stocks are going to outperform growth stocks but we actually try to define our themes rather more strongly, as in the growth in China or luxury goods or hidden break up value. We try to make it more specific, rather than general.

Q: How many equity stocks do you have in a portfolio at any given time?

A: The equity income fund is about £17 million and it’s a fairly concentrated portfolio with about 32 or 33 equity holdings. They would be roughly 3% each and every stock needs to have a meaningful impact on the portfolio as a conviction bet.

Q: How would you describe your research process? Do you visit the companies or rely on the brokers only?

A: With some of the smaller companies, we tend to focus on companies with market cap of between £300 and £400 million. We meet management of companies and conduct our independent research.

For us to do our own research on large cap companies like BT, Glaxo, Diageo or Prudential is really trying to reinvent the wheel. So we rely on a range of brokers who provide us with competent research on real time basis to get up-todate news on those larger companies.

We also go to seminars and result meetings, but we get the best value out of using the brokers’ research and focusing on people we know well.

Q: In the equity income fund, would you worry about the market capitalization of the company or you would go wherever you think to invest money?

A: I tend not to go to the smallcap end of the scale. If things were to go wrong, you can sell the holding in a market that is liquid. You cannot get stock and there can be little liquidity in some of the small-cap names in the UK market. So, anything from £300 million up to the very biggest would be our investable universe.

Q: How many companies fall into that group?

A: That would be about 400 to 500 companies. We look at UK companies only but it depends on what you mean by a UK company. BP or Glaxo are global companies, but with a UK quote. It would be fair to say that we are looking at UK quoted companies, given the fact that a large majority of our investors are UK investors and have UK liabilities.

Q: How would you define your sell discipline?

A: We tend to sell a stock if it trades above our view on fundamental value of the company. In fact, earlier this year, I halved holdings in the mining companies that we held, that because I believe the valuations are getting overextended.

We’d also look to sell a stock if we saw a warning on profit that wasn’t expected. A review meeting to discuss a stock is generally triggered by a fall of 20% from the buying price. If a stock were to trade at that level for more than one quarter, then it’s clearly not acting in the way that we thought. We review the stock and current market conditions and the investment team makes a decision to hold or sell the stock.

What we don’t want to be doing is to be reinforcing weak positions, because that has been a recipe for underperformance in a lot of cases.

Q: What is your overall turnover?

A: It is very low. When new money comes in, it is invested. In terms of the general turnover, it’s probably 25% over a year. Our focus is to identify companies and hold them between two and three years, rather than five years. We are not traders, we are patient fundamental investors, looking to invest and wait for our themes to play out in stock prices.

Q: How do you differ from your peers?

A: We run more concentrated portfolios. If a stock doesn’t fit our thematic ideas we avoid it. We don’t invest in every large company in the index that trades in the UK.

One good example, over the past few years, has been the telecommunications stocks, which we thought lacked pricing power and would struggle to grow revenue. Although it’s quite a reasonable size in the UK market, we have very few telecom stocks. It’s a big bet against the index for us, which has proved right for the past two or three years.