By Elliot Gulliver-Needham
In this weekly series, investment reporter Elliot Gulliver-Needham sits down with a fund manager for a Q&A. This week, we’re hearing from Matthew Tillett, manager of the Premier Miton UK Value Opportunities fund.
How does your fund stand out from others in the same market?
The IA UK All Companies sector is certainly a crowded sector where investors have a lot of choice. However, there aren’t many funds adopting a multi-cap approach with a genuine value philosophy, which is what we are doing.
Why might this appeal to investors? Firstly, as has been well documented elsewhere, the value style has been very out of fashion for many years now. This is great for us because it means there is less competition for the types of situation we look for, making it easier to find mispriced stocks.
Secondly, a multi-cap approach allows us to survey the whole spectrum of opportunity in the UK equity market, from the big mega caps right down to small and even micro caps. This is important because the best opportunities are not always found in the same segments of the market.
Our fund typically has a fairly even spread of exposure across the market cap spectrum but it does vary quite a bit over time depending on where we happen to find the most compelling investment ideas.
Having an open mind about where to go looking for mispriced stocks gives us a lot of raw material to work with for new ideas, whilst avoiding holding onto stocks that are no longer undervalued.
Which of your holdings are you most excited about?
We currently have around 10 per cent of the fund invested in three travel companies, all of which are market leaders in their respective sub segments. We are very excited about these holdings. We believe the stock market is hugely undervaluing their long-term growth potential as it frets over short term news flow.
Over the long-term, travel has been a fairly consistent growth industry. As people around the world get richer, the desire to travel to new places increases, a trend which is likely to continue in our view.
More importantly, we believe the pandemic has created a once in a generation opportunity for our travel holdings to turbocharge their growth by investing counter-cyclically whilst competitors have been in distress. This is precisely what they have been doing and the benefits should acquire to shareholders for many years to come.
We believe the recent experience of the pandemic combined with general cyclical worries around the economy and the consumer are creating this very compelling valuation opportunity. It’s also a great example of how “value investing” can often involve owning growth companies.
What is the biggest mistake you’ve ever made in the fund?
We underestimated the impact that the new Consumer Duty rules (introduced in 2023) would end up having on consumer facing financial services firms. We do have some exposure to this sector in the fund and it has cost us some performance over the last year or so.
In this business it’s always easy to beat yourself up with the benefit of hindsight. But in this case, I think we could have seen some problems coming, although in one case we did at least limit the damage by acting very quickly to sell out once it was clear how significant the issue was.
What’s one change you made in the fund recently? Why didn’t you make it sooner?
We have substantially increased the fund’s exposure to the listed property sector, which stands at just under 10 per cent across five holdings.
The sector is very out of favour, a casualty of the higher interest rate environment (which has negatively impacted valuations whilst increasing interest costs), as well as general concerns around changing work habits and the ongoing crisis in the US commercial office market.
We think the fundamentals on the ground are much better than most people think. The subsectors that we have exposure to (prime central London mixed use, industrial logistics and student) are all seriously under supplied relative to demand. This is manifesting itself in strong rental growth, which we expect to continue for some time.
The reason we didn’t make this change sooner is because the sector has clearly been in a cyclical downturn. We wanted to wait until we were reasonably confident that inflation and interest rates had stopped rising before making this change.
