Credit Suisse today revealed that the CS UK Growth & Income Fund has been re-positioned to encapsulate the thematic investment style the team has been exploiting to produce top quartile returns over the past three years.
The newly-named UK Thematic Fund taps into the team’s expertise in thematic investing, which combines a top-down overview through various ‘themes’ with bottom-up stock detail to best capture those themes, adding alpha at both ends.
The revision of investment objectives for the new fund, most notably to achieve capital growth, has also freed the team up to invest in any stocks they wish which meet their theme objectives, without having to consider yield.
By putting themes at the centre of the process, the team aims to identify good investment ideas at an early stage ahead of the market. The team identifies long-term trends through an observational approach, looking at factors driving the UK economy such as GDP growth, employment figures, political change and what is driving regulation.
Once the 10 or so themes are identified, the team selects the best stocks to capture those trends for the portfolio.
A good example is the trend of heightened security following terrorist activity over the past few years. This theme makes up 5% of the fund and is being played out in the portfolio in two different ways, both aggressively and passively. First, the increased defence spend from the armed forces is captured by investing in BAE Systems, which develops advanced defence and aerospace systems. Second, the team invests in Smiths Group, which produces screening devices used at airports worldwide.
“The way we capture a theme may not always be by going for the obvious, as we have outlined in the security theme example. We add value to the portfolio by taking a non-conventional approach which is not driven or constrained by any index. This allows us to avoid a lot of the noise in the market and forces us to take a long-term view which prevents us being buffeted around like a lot of managers who take a shorter-term view,” says Marcus Hankey, manager of the CS UK Thematic Fund.
Two other prominent, and rather contrarian, themes in the fund are the impact of falling interest rates which the team believes makes some financial stocks attractive; and the team’s view that an end to the commodity boom is around the corner. The fund is 13% underweight commodities compared to the FTSE All-Share benchmark.
“Our view is that the falling interest rate cycle has further to run which is making property companies with global exposure such as Savills particularly attractive and good value for us at the moment. Furthermore, we have been opportunistically adding to our banks holdings given the concerted efforts of central banks to ease current liquidity pressures. We are also negative on commodities as we witness slowing growth in developed and developing markets which we believe will trigger a fall in demand for commodities that will have a knock on effect on commodity prices, making this sector unattractive over the longer-term,” adds Hankey.
The CS UK Thematic Fund has grown out of the existing 78 million CS Income & Growth fund which has been restructured, following shareholder approval, to pursue a thematic investment approach with more of a growth focus.