There are so many funds that invest in the UK stock market that it can be difficult to find one that offers a different type of exposure with the potential to significantly outperform. Few are contrarian enough to really deliver, but that is certainly not the case with CF Miton UK Value Opportunities.
This relatively new fund was launched in March 2013 and it is already up more than 52%, while the average return from the UK All Companies sector is just 21%. It is also comfortably ahead of both the FTSE 100 and FTSE 250 indices over the same period.
The managers, George Godber and Georgina Hamilton, are value investors and look for UK companies that they consider to be undervalued by the market. Before joining the Miton Group they worked on a similar mandate with the FP Matterley Undervalued Assets fund, where they were understudies to Henry Dixon.
CF Miton UK Value Opportunities has £318m of assets under management with the money divided between 62 different holdings. About a third is invested in the mid-caps of the FTSE 250, with just 13.5% in the blue chips of the FTSE 100 and the balance in smaller companies on the main market and AIM.
The managers tend to focus on the tangible assets on the balance sheet and cash flow rather than company profits as these are harder to manipulate or overstate. This has pushed them towards the house builders with Bellway, Barratt Developments and the Berkeley Group all making it into their top 10 holdings.
Another significant weighting that has contributed to the outperformance is the UK car retailing group, Vertu Motors, whose best known brand is Bristol Street Motors. The company now has over 71,000 customers on monthly service plans and this gives it a higher quality stream of earnings than would be possible just from selling cars.
Godber and Hamilton have a database of 470 companies that includes all the constituents of the FTSE 350 ex investment trusts, as well as 170 small cap stocks that have adequate financial backing and liquidity for them to invest in. They use this information to identify shares with cheap assets, cheap value creation and sufficient funding.
Before buying a stock they make sure that the business is generating sufficient cash to service its debts, meet its overheads and pay its dividends. They then double check that there is enough left over to provide a decent margin of safety.
CF Miton UK Value Opportunities is a contrarian fund with the potential to deliver market beating long-term returns that would work well alongside a more mainstream holding such as a member of the UK equity income sector.