Buying back in
When two wrongs make a right
Trading in and out of stocks isn ’ t the only example of supposedly poor investment practice – attempting to time the market is also regarded as a fool ’ s errand . Yet sometimes a change in the make-up of the economic backdrop can make fund managers view former holdings in a new light .
James Inglis-Jones , manager of the
Liontrust European Growth fund , says tobacco group Swedish Match is a company that scored well on his team ’ s cashflow solution investment process , but did badly when it came to secondary considerations . As a result , he sold out .
“ This suited us as at the time , as we were seeking to introduce some more cyclical value exposure to the portfolios ,” he explains .
But the sale proved ill-timed : Swedish Match performed well as a defensive asset as the Covid crisis unfolded in early 2020 .
Inglis-Jones re-introduced Swedish Match to the portfolios earlier this year for two main reasons .
“ First , the scores were strong ,” he says . “ The company not only ranked in the top quintile but also had appealing secondary scores – particularly the cash-return score , which was in the top 1 % of the market .
“ Second , at the end of 2021 , we were worried there was more volatility to come in markets and knew that stocks with strong cash-return scores like Swedish Match would perform well in a more volatile environment . It has fared well for us this year .”
Intel and benefit from the transition from AI training to AI inference : “ We sold in August 2020 as it was better understood by the market and had re-rated to an ambitious P / E ratio .” However , a de-rating in 2022 , plus the recent acquisition of Xilinx , saw him buy back in .
Selling and buying back may suggest indecision , but only where it is regular and unexplained . Otherwise , it can also show a fund manager who has a keen eye on valuations , regularly reappraises their holdings and is willing to admit to their mistakes .
Issue 85 - June 2022 / 39 /