Cash that kept a ’70s party fizzing

Forty years ago the founders of a fashion boutique invested £1m of profits. It led to the launch of the Cavendish Opportunities fund, which now thrives in the hands of the Paul Mumford

Patrick Collinson 2012 byline 160

The more grey-haired among us will remember Chelsea Girl, the 1960s high-street boutique that was the stuff of teenage girl’s dreams. It closed long ago, but, astonishingly, it was behind the launch of a fund management boutique, Cavendish Asset Management.

In the early 1970s, Chelsea Girl was throwing off cash, and two of the founders of the firm, David and Bernard Lewis, approached a city stockbroker to invest £1m. The market had been falling, and stocks appeared to be cheap. But this was 1973, and within a short period the market halved. The Lewis’s thought, well, now it’s even cheaper, and put in another £1m. As anyone who remembers the great market crash of 1973-74 will know, the bounce-back was extraordinary (the FT30 fell 73 per cent then doubled in 1975). The Lewis’s £2m turned into £8m, and over the years that money gradually turned into a private wealth management company, today called Cavendish and which remains a part of the Lewis Trust.

Paul Mumford, who runs the Cavendish Opportunities fund, remembers the period well. He first began at a brokerage in the City in 1963, and has spent much of his life researching smaller and midcap companies.

Although 68 today, he says he has no intention of stepping down, which given his fund’s performance, is precisely what investors will want to hear. He thinks the stocks in his portfolio remain undervalued, that the economy is picking up and that there will be a flood of merger and acquisition activity over the next few years. Why leave the party now?

Cavendish Opportunities is top decile in the IMA UK All Companies sector over both one and three years. Ranked fifth out of 294 funds over three years, it has earned investors a 60 per cent gain compared with 23 per cent for the sector. It has grown in size – it now has nearly £70m under management – but is still surprisingly small given its performance and the pedigree of its manager.

Mumford likes to keep things simple. Buy cheap, sell high, don’t take too many risks and don’t be totally handicapped by sector constraints. The fund has 70 stocks, none of them more than 2.4 per cent of the portfolio. It is mostly small cap, but Mumford has the option to go into large caps. “Between 1988 and 1992 we were almost entirely in small caps, between 1992 and 1995 we swung almost half into large caps, and from 1995 to 2008 we were almost entirely in small caps. Right now I quite like some of the large cap recovery situations.”

“The market is generally undervalued and I am finding anomalies in all areas”

That means in this fund you’ll find Aim-listed oil exploration plays alongside holdings in Lloyds and RBS. He recently took profits on his holdings in Barclays, but still thinks the other two have further to run. But these are not big bets – each are at only 1 per cent of the portfolio.

What strikes you when talking to Mumford is how exciting his stocks sound, the enthusiasm of Mumford himself, and the way it is all corralled into a risk-controlled portfolio.

Behind the recent outperformance lies a number of retail, housebuilder, property and oil and gas plays.

“Being a stockpicker I’ve always been contra-cyclical. So I started buying some housebuilders a year ago, and bought into some retailers. My holding in Debenhams doubled in price, and M&S I bought into at around £3, today it’s nearly £4.”

Among the housebuilders, he likes Bovis and Galliford Try “both of which raised money during the downturn and have good land banks,” he says. “I’ve even bought a stock which previously I told myself I’d never buy in a million years – Taylor Wimpey.” (It has gone from 35p to 60p in the last year).

But it’s oil and gas that today sparks most passion in Mumford. “It has always been an area of interest to me. Back in 1999, when oil was at $12 a barrel, I started buying into the well-capitalised E&P stocks. I bought into Dana, Tullow, Premier, and Cairn. Now, looking forward, I have got four in the sector which I think could do just as well.”

FS 2910 Collinson

The four are Faroe Petroleum, Valiant Petroleum, Circle Oil and Northern Petroleum. Maybe one of them will one day be in the FTSE 100. Any of them could become a “five or 10 bagger” thinks Mumford. But again, diversification is key. Faroe is 2 per cent of the portfolio, the others much less. If none perform, the cost to the fund won’t be high .

The two he’s most excited about are Valiant and Northern. Valiant operates in the Norwegian part of the North Sea, whose cash-rich govermment returns 80 per cent of drilling costs. Valiant has recently obtained some interesting licences, yet it still trades cheaply – currently 450p compared with 600p in May and over 1000p in 2008.

Northern Petroleum operates in the Adriatic, and has already found some ‘heavy’ oil. Mumford almost joyfully says it has been a “very bad performer, but one has to look at the potential going forward”.

Property is his other major theme, with a lot of shopping centre companies in the portfolio, such as Capital and Regional and London and Associated. He’s also a fan of Quintain, which is developing a mile and a half of Thames waterfront near the O2, with plans to build up to 10,000 homes.

Mumford loves the fact the market doesn’t believe in the UK’s long term future. It means he can carry on buying stock cheaply. “The market is generally undervalued and I am finding anomalies in all sorts of areas,” he says. He reckons the big life companies will start shifting out of bonds and back into equities at some point. “The weight of money argument is a good one at the moment,” he says.

Mumford has an impeccable investing history plus great recent performance. It’s a winning combination – and although he’s 68, one gets the impression he’ll have to be carried out of office. He still starts at 6am every morning “I love it,” he says.


Patrick Collinson is the Guardian’s personal finance editor