Slater finishes reworking UK Growth fund

24 June 2010 | By Stefanie Eschenbacher

Mark Slater, the manager, now focuses purely on dynamic, fast-growing companies, mostly small- and mid-caps. Some of the stocks are Aim-listed and many operate in niche areas.

Not only has Slater shifted the focus of the fund, he has also created a much more concentrated portfolio. Since October, the manager cut the number of stocks from 32 to 19. His top five companies account for around 35% of the portfolio, while the top 10 companies account for 57%.

Although a more concentrated portfolio is normally associated with higher risks, Slater insists he opts for “companies that are ultra-predictable” and not volatile.

“It is a very good time to focus on growth companies as they are becoming more rare and the environment is becoming more challenging”

Following the revamp of the fund, more than half of the portfolio is now invested in small-caps and Aim stocks. In November, the share of small-caps and Aim stocks was just 10.9%.

Some 16% of the portfolio is invested in FTSE 100 companies, down from 61.9%. Only 7% is invested in FTSE 250 companies, down from 12.3%.

Slater still holds about a quarter of his fund in cash. However, he is planning to put the cash to work as soon as adequate investment opportunities arise.

When selecting holdings for his portfolio, he focuses on companies that have high-quality businesses, are cash-generating and trade on attractive valuations. Slater aims to achieve long-term capital appreciation through an investment style that uses a price-to-earnings growth ratio as the main valuation tool. (article continues below)

The MFM Slater Growth fund is the only pure growth fund the group offers.

“We have always had a focus on growth companies but [our other funds] also invest in commodities, deep value, recovery and gold shares,” Slater says. “It is a very good time to focus on growth companies as they are becoming more rare and the environment is becoming more challenging.”

Over the past couple of months, Slater has been adding to existing holdings. He doubled, for example, his positions in Education Development International and Alliance Pharmaceuticals. Both companies are quoted on Aim and account for around 8% of the portfolio.

Education Development International has been part of the portfolio since April last year. According to Slater, the company it is well positioned to gain market share and offers good long-term growth prospects. It has also net cash the equivalent of 15% of its market value and is trading at nine times earnings.

Alliance Pharmaceuticals’ operating results have been equally impressive, Slater says. In addition, it has an acquisition model that is difficult to replicate: it buys neglected drugs that do not need marketing support.

Although the MFM Slater Growth fund has changed its focus to a pure growth strategy, it will continue to primarily invest in British equities.

To receive more relevant articles like this one, why not sign up to our briefings and breaking alerts by clicking here and Follow @fundweb