JOHCM’s Savvides seeks out ‘value plus’ recovery stories

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JO Hambro Capital Management’s Alex Savvides believes a pure value strategy does not work as he searches instead for ‘value plus’ stocks led by positive internal changes and recovery in quality companies.

The manager of the £50.9m JOHCM UK Dynamic fund looks to select companies at “low points in their life cycle”, such as a decline in share price. However he argues this does not mean the fund is purely value driven.

He says: “It would be easy to employ a value strategy and buy just the cheapest stocks, but that doesn’t work in my mind. It has got to be value plus internal changes that should be positive for the company.

“Although the outlook may still be very uncertain for a company at our point of entry and the share price might still be declining, we can see that a change is coming from within the company.”

Savvides also focuses on cash metrics and selecting quality stocks to further ensure that a company can come out positively from a period of change.

“We try and create a margin of safety underneath us by focusing on cash-based metrics. We only invest in dividend paying companies,” he says. 

“When it is a good enough company and where we have this margin of safety, we back the change.”

Out of a portfolio of around 40 to 50 stocks Savvides has most recently been buying what he describes as a mixture of recovery, restructuring and hidden growth stories including Icap, Lloyds TSB and Britvic.

He notes a recurring theme of “later cycle assets” in other recent additions Shanks, National Express, and Numis. However he adds that the most important aspect of these holdings is still the opportunities for change in each company.

Savvides also points out that a number of the fund’s newer holdings are smaller companies that “have been left behind the market rally over the last few years” as a result of “less interest in smaller companies”.

Elsewhere in the portfolio, Savvides is looking to potentially recycle some longer-term holdings that have generated a “large majority” of the fund’s outperformance, such as Taylor Wimpey, Standard Life, packaging manufacturer DS Smith and wireless technology solutions company CSR.