Who should buy this UK growth and income fund?

His Garraway UK Equity Market fund has delivered lower volatility than the market and double-digit annual returns. Here, David Urch explains how, his shorting tactics, and who should own the fund. 

You believe that harnessing positive change at company level leads to share price outperformance.  Please explain?

We're trying to invest in businesses that are performing better operationally than the market is forecasting.  That typically expresses itself in positive earnings revisions, and by association, positive medium-term share price momentum.

A combination of the two can be a powerful driver of share price outperformance, and that's what our discipline process is trying to harness on a repeatable basis.

Which stocks best exemplify your approach?

There are many examples, but over the six or seven years of the fund, I would say that something like Ashtead has been one of the biggest positive contributors to our performance.  The management team have consistently managed to deliver better operating performance than the market has been forecasting.  And that has led to a fairly continuous stream of upgrades through that period, which has led to share price outperformance and benefited the fund.

How has your fund performed over the last few years relative to its objectives and peer group?

The fund performed well against the peer group.  Since inception, in May 2012, the fund has met or exceeded the median return of the peer group on a discreet quarterly basis over 60% of the time.

We had one poor quarter at the end of 2016, but otherwise where we've underperformed the median, it's generally been by a very slim margin.

Did short selling help your performance? What are you shorting currently?

We do have the ability to short up to 15% of the portfolio, but we don't lever the portfolio.  We limit the gross exposure at 100%.  That means if we want to short something we have to sell an alternate long.  Essentially by running a short position we're saying that the risk reward profile looks more attractive than for another long that we could invest in.

That extra hurdle in the stock selection process means that we don't typically run many shorts.

That said, at different times, we have had strong contributions in the short book. Tesco as a short position in 2015, would be a good example.

Currently we don't run any short positions at the moment.

What type of investor should buy your fund?

We have a wide range of investors in product currently, from fund of funds through to traditional wealth managers, and IFA groups, and some high net worth individuals.  Really, we think the fund could appeal to anybody looking for a core multi-cap UK equity approach.

Since launch, with lower volatility in the market, we've compounded annual returns of 11.3%, and 3.1 of that return has come through the income we generate.  And that income with a dividend on the fund has grown at a compound rate of just under 8%.  It's really attractive to people looking for a diversified source of income.    

This is the transcript of a video filmed on 2 November 2018. To watch the original video, please click here.