AUBREY EUROPEAN CONVICTION: A boutique fund that sticks to a clear strategy allowing it to punch well above its weight
Sharon Bentley-Hamlyn thinks investors are expecting a bumpy ride. Markets are collapsing around the world in a storm of chaos – from rising inflation to Covid restrictions in China and Russia’s invasion of Ukraine. However, the co-manager of Aubrey European Conviction expects better days.
“Markets hate uncertainty, which is why we see so much volatility,” she says. “But, with our fund, we are looking at long-term trends that will exist regardless of what happens in the next few years. That’s why we focus on topics such as technology and renewable energy.
Like most European funds, Aubrey European Conviction has suffered a decline of 29% this year. However, its strong track record means it has still managed to turn a £100 investment into £122 in three years and outperforms other European funds on average.
In fact, the fund has little in common with many of its rivals. Bentley-Hamlyn and its co-manager John Ewart look for companies that generate lots of cash on their balance sheets.
This orientation means that there is only a 5% overlap between the companies in the portfolio and those listed on the index of Europe’s largest companies. Swiss compressor manufacturer Burckhardt Compression and Swiss chemical company Sika Group are among the main holdings.
Edinburgh-based Aubrey European Conviction is a boutique fund, so it lacks the analyst teams and resources of some of its rivals. However, Bentley-Hamlyn believes sticking to a clear strategy allows the fund to punch well above its weight.
“You don’t need huge teams if you have a disciplined strategy,” she says. “We have 3,000 possible companies to choose from, but we can quickly filter that down to 30 or 40 with three simple screens” [processes that identify stocks that meet the right criteria]. Bentley-Hamlyn and Ewart use three equations to identify companies producing strong cash flow. They believe these companies are the most likely to finance their own growth, without the shackles and costs of debt and relying on banks or investors to finance their expansion.
“We look for growing companies that waste money,” adds Bentley-Hamlyn. “Few of our companies pay dividends because they want to use their capital to increase their market share. We skim the dynamos within our market.
Companies from the UK, Switzerland and Germany make up the largest weightings in the portfolio, although no country represents more than one-fifth. Grenergy, a Spanish company that designs solar power plants, is one renewable energy company that Bentley-Hamlyn is particularly excited about. She says, “They have about 540 megawatts of capacity right now, but a pipeline of 20 times that over the next ten years.”
She also sees potential in Marshalls Group, a British landscaping and paving company that is seeing strong demand.
The fund steers away from most mainstream brands, fearing rising inflation will hurt disposable incomes. However, where there are opportunities, they will still leap. Two exceptions are Watches of Switzerland and the discount supermarket chain Dino Polska – brands they say will remain resilient.
“Swiss watches tell us that customers sometimes have to wait months for the Rolex of their choice,” says Bentley-Hamlyn. “They are so prized as collectibles that only 10% of watches purchased from their flagship store are actually worn. We believe that with this type of demand, it is a safe investment.
The fund’s stock market identifier is BKBDR06. Its current annual royalty is 1 percent.