Matterley expects to unveil a 130/30 investment trust for Henry Dixon and George Godber by the end of this year. The news coincides with the launch of Undervalued Returns – the firm’s first retail open-ended fund.
Dixon, the lead manager on Undervalued Returns, says the investment trust is a “brainchild that is growing rapidly” after positive discussions with advisers and lawyers last week.
The fund will focus on British stocks but will have flexibility to invest in continental Europe.
Godber, Dixon’s co-manager on the open-ended portfolio, will use shorting experience he gained during seven years at Credit Suisse. Dixon, who spent the same period running retail, ethical and institutional portfolios at New Star Asset Management, will focus on long positions within the trust.
Ian Dighé, Matterley’s chairman, says the firm also plans to launch a hedge fund and a private equity strategy focusing on non-bank financials. However, its initial focus is on Undervalued Returns.
The fund was soft-launched on August 12 with seed money of £1m, and assets are likely to rise to £10m by the end of September.
Initial holdings in the fund include Firstgroup, a bus and rail company. The firm is expected to generate a return on capital of 10%, but Dixon says the stock is trading at a 20% discount to fair value. Firstgroup will also benefit from higher oil prices, he adds, as more motorists choose to travel by public transport.
The fund also buys stocks at a material discount to replacement cost, such as Millennium & Copthorne, an international hotel operator. The company forms about 3% of Undervalued Returns. According to Dixon, recent disposals have left the firm almost debt-free and it is well-placed to close the 60% discount to Matterley’s valuation.
Undervalued Returns held 44 positions last week and will operate in a range of 40-50 stocks. About 60% of the fund is in large caps. The portfolio focuses on British-listed shares, but 80% of company earnings are generated abroad. The fund also has 20% in overseas stocks. Its biggest non-domestic holding is Roche.
The annual management fee is 1.25%, with a minimum investment of £1,000.