Interactive Investor

Mark Slater: why Covid can boost half this fund in 2022

22nd December 2021 21:31

Lee Wild from interactive investor

Find out why the Slater Growth Fund is doing so well, what Mark thinks about inflation and rising interest rates, and what’s in store for the fund in 2022. He also talks us through a busy day for buying shares and how he behaves during a market crash.

Lee Wild, Head of Equity Strategy, interactive investor: It’s been another strong year for the Slater Growth Fund, and you’ve significantly outperformed the benchmark, could you explain the key drivers behind the outperformance in 2021?

Mark Slater, Chairman and Chief Investment Officer, Slater Investments: The biggest factor has been that our larger holdings have done well, Future (LSE:FUTR) is our largest position, that did particularly well, and others, Next Fifteen Communications Group (LSE:NFC) is a standout performer this year for us, that’s a company we’ve owned for a very long time now. And other notable contributors were companies like CVS Group (LSE:CVSG), Liontrust Asset Management (LSE:LIO), Gamesys, which was acquired during the year, and we didn’t have many mistakes. So it was a combination of a lack of mistakes, and some of our bigger holdings doing particularly well.

Lee: Are you concerned by the likelihood of high inflation and rising interest rates in 2022, two very big themes that are likely to dominate? What’s your view on prospects for financial markets over the next 12 months?

Mark: My instinct is it will get harder, I would have said that 12 months ago as well, mind you, just because there hasn’t been a correction for a long time. But I do think the recovery from COVID is complicated, as we’ve seen, there are shortages in lots of areas, there’s lots of complexity, so my instinct is it will be harder than 2021, inflation is a thing that keeps coming up with companies we’re meeting. 

Now the companies we own are able to pass on cost inflation, so far at least, but that’s clearly something we have to keep an eye on, the risk of higher interest rates, perhaps that risk is slightly reduced owing to the new COVID variant, it’s hard to tell. But if rates were to go up, that again creates a significant headwind for asset prices, so there are lots of challenges. Our focus is on businesses that can do their thing pretty well come what may, and we try and make sure we own those at a reasonable price, if we do those things, I’m not overly worried about the economic back cloth over time, but that’s not to say there couldn’t be a challenging few months. It’s very difficult to get the macro right, so we’re very focused on companies and that’s really all one can do, is focus on companies, and make sure that they can deal with the challenges that are out there.

Lee: Do you have to – or do you expect to have to tweak your strategy at all?

Mark: No, we really don’t, we’ve barely changed anything over a very long period of time. That’s not to say you don’t get better at it, you pick up certain signals that might hint at problems in the future. You learn as you go along, but I think the essence of our strategy is not – it shouldn’t change, we’re trying to buy decent businesses at good prices, and we focus on cashflow as our primary sanity check. Those things shouldn’t change, so it’s really about good businesses at sensible prices, that I don’t think should change because of any external factor.

Lee: I mean, what do you think is in store for the growth fund in 2022, as I say, a great 2021, are there any big events in the diary, or emerging themes you think will positively affect performance, or that you might want to gain exposure to?

Mark: I’m not sure there’s a particular event coming, I mean there will be events, and there always are, and you have to watch out for them, but it’s very hard to know what they are before they happen. Looking at the portfolio today, roughly half the portfolio has either recovery potential after COVID - so companies which have been hindered to some degree, that are still coming back from COVID - or they have additional momentum thanks to COVID because people have changed their habits, or they’re doing things slightly differently, and that’s actually helped certain businesses. 

So roughly half the portfolio has either recovery or momentum thanks to COVID, but the other half has just sensible and healthy momentum for other reasons. But there’s not a particular event, I would say, there are things that I worry about, and we touched on inflation, that clearly is something one has to spend some time on with any company one owns. But there’s not a particular event, as far as 2022 is concerned, we like what we own, that we own good businesses that are sensibly priced. But if the market setup completely changes in a very negative way, of course, we’ll be impacted, but I think we, over time, will be much less impacted than the market average.

Lee: As we film this interview [Monday, 29 November] the markets have taken quite a tumble, the FTSE 100 was down 3.5% on Friday. Do falls, dramatic falls in share prices, offer an opportunity for the Slater Growth Fund, do you keep powder dry for such scenarios?

Mark: We don’t keep powder dry in order to sort of predict markets, but we actually, as it happens, have quite a lot of liquidity at the moment in the fund, much more than usual. And we were very active on Friday in the markets, we were buying quite a large number of companies, existing holdings we were adding to materially. We don’t try and time markets, but sometimes we have cash because we’ve sold something, or we’ve had an inflow, and we don’t feel we have to deploy that cash immediately when it comes in.

We’re very disciplined in terms of price, we have a buying list most times, and but we have pretty strict price limits, quite a lot of those came into play on Friday, so we were very active.

Lee: ii is campaigning for greater transparency regarding fund managers investments in their own funds, it’s skin in the game, do you own a stake in your funds, are they split between growth and income?

Mark: Yes absolutely, I mean I’m a very substantial shareholder in all of our funds, and always have been, and I think it’s incredibly important that fund managers do eat their own cooking. You wouldn’t go into a restaurant where the chef refused to eat his own food, and I think it’s exactly the same with fund managers.

Lee: Mark Slater, thank you very much for joining me today.

Mark: Thanks Lee, very much.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.