A rummage among the stocks in Rathbone Global Opportunities bears out its manager’s claim that it is an aggressively managed, high-conviction portfolio of undiscovered growth stories.
James Thomson, the manager of Rathbone Global Opportunities, asks me what I think of his suit. Now I know Rathbone’s offices are in the swankiest bit of New Bond Street, so I hazard a guess at Ralph Lauren, or maybe Prada or Armani. But the truth is that Thomson has been shopping on a rather less swanky bit of Oxford Street. The suit is from (now whisper this) … Primark.
Has Thomson fallen on hard times? Is Rathbone short of a few quid? No, Thomson is just trying to prove a point. He says he’s a huge fan of Primark as a stock and that despite everyone’s sniffiness about it, he’d much rather have its holding company, ABF, in his fund portfolio than any other retail brand. Shares in ABF have soared above £10 in recent weeks and are trading significantly above their pre-crash highs. Primark continues to expand across Britain and has started to open stores across Spain as well.
ABF is the third-largest holding in the £83m fund, which Thomson likes to style as an aggressively managed, high-conviction portfolio of undiscovered growth stories. But although it has the word Global in the title, it’s not really about go-go emerging market stocks. Thomson recognises his limits.
”I decided I had to mature as a fund manager and look for ideas in more reliable sectors”
“I’ve dabbled in Chinese stocks but I’m at an informational disadvantage to someone in mainland China,” he says. In any case, he argues the best way to play China as a global investor is through stocks listed in the West.
He recently attended an investment conference in Hong Kong. He didn’t buy any of the stocks being pushed, but he did note that when he asked where he should buy some souvenirs, the locals told him to go to Wal-Mart. It’s that sort of stock that will benefit from cheap Chinese manufacturing.
“Indeed, I see Primark as a way to play the emerging market story,” he says.
Thomson says that while he’s invested in growth stocks in the under-researched end of the market, he is not interested in special situation/recovery stocks or what he calls “blemished” companies. He likes companies whose share price has fallen because of factors outside their control, but which are fundamentally robust. (article continues below)
He points to Visa, which was hit hard by worries about credit contraction in 2008, when in reality it is not exposed to credit risk. All it does is transaction handling, yet it slumped from above $80 (£52) to below $50 in a few months.
Adobe went through a similar plunge, hurt by delays to software upgrades as corporates nursed their balance sheets back to health. But it’s fast recovering, says Thomson.
One of his main themes is making money from the internet. For those of us who work in newspapers it’s difficult to think of the internet as anything other than a way to lose bucketloads of money. But Thomson points to the many companies making huge profits from the net, and he’s not just talking about Google.
“I think Rightmove is in a sweet spot right now,” he says. “In a bull market you only have to put a picture up in the window and you’d sell a property. In this market you have to make sure your property is on rightmove.co.uk. Something like 70% of people looking for a property go on to rightmove.co.uk.
“[The company] recently told estate agents that listing prices were going up 10%-30%. There was a bit of an outcry from agents, who have been having a tough time. But they virtually all renewed.”
Rightmove collapsed from 600p in late 2007 when the property bubble burst, falling to 165p just a year later. Thomson bought in April 2009, when the price had already nearly doubled. But since then it has doubled again, back to about 600p.
Thomson reckons the model can also work overseas. He is a buyer of SeLoger, “le N°1 de l’immobilier sur internet”, in France, which is hoping to copy Rightmove’s success.
His biggest holding is Dolby Laboratories. I had thought Dolby was a languishing brand, but I was wrong. It enjoys 50% operating margins, putting its devices into Dell, Apple and HP machines as well as high-quality HD TVs. It’s trading at $58, well above its 2007 high of $50.
But Thomson’s stock picks have not always been so good. He had a dreadful year in 2008, losing 40% of the fund’s value when the average global growth fund was down only 24%. It came as a shock to find himself bottom quartile after he’d been top quartile in 2007.
What that taught him was to find growth stories in more reliable, mature areas. “I decided I had to mature as a fund manager and look for ideas in more reliable sectors,” he says.
He gets out a packet of Snus, a Swedish chewing tobacco that is reputedly used by 25% of men in Scandinavia. It’s the crown jewel of Swedish Match, giving it a growth product in an otherwise declining market. Swedish Match did not fall too far in 2008, declining from about SKr160 (£14) to about SKr120, and today is just above SKr170. Put that in your pipe and smoke it.
Other “mature” stock ideas Thomson is keen on include funeral home companies and pet pharmaceutical companies.
He has about 50 stocks in the portfolio, but does not pretend it’s a distillation of all the stocks on all the exchanges across the globe. “I’m just trying to find the best 50 ideas that I’ve researched and seen. If you tried to narrow down all the stocks in the world to just 50, you’d probably end up throwing yourself out of the window. You need conviction about your own ideas.”
I have a little confession to make, too. After Thomson told me about his Primark suit, I told him about the jeans I was wearing while interviewing him. Only that day, one of my colleagues in the office said what lovely jeans they were, and asked where they were from.
“I suppose they cost £150 or something” she said. I didn’t have the gumption to tell her they weren’t just from Primark, but from the Primark sale. Reduced from £8 to £4. That’s not even enough to buy a single share in ABF.