Parting is such sweet sorrow: CF Miton UK Value Opportunities

It has recently been announced that the managers of CF Miton UK Value Opportunities are leaving and moving to Polar Capital. George Godber and Georgina Hamilton have had a highly successful career working together and their departure creates a real dilemma for investors in the fund.

Godber and Hamilton have developed an interesting value-based methodology for selecting stocks that has generated significant outperformance. Their CF Miton UK Value Opportunities fund is ranked second in the UK All Companies sector over 3 years with a return of 58.5%.

They have worked together on this sort of mandate for around 9 years, first at Matterley and then at Charles Stanley, before joining Miton and launching their current fund in March 2013. Over the intervening 3 years they have attracted almost £900m in assets under management.

Godber has a 12 month notice period and Hamilton 6, so there is no need for investors to panic even though Miton’s share price – it is listed on AIM – fell sharply on the news of their departure. They will only leave earlier if the company manages to replace them.

The problem is that the success of the fund is largely due to the managers’ screening process and their ability to select the best stocks that it highlights. A lot will depend on who takes over and whether they can replicate the same impressive results.

This suggests that the best option for investors is to wait and see what happens. If Miton find a good replacement who is willing and able to follow a similar strategy there may be no need to change anything, otherwise they could just hold on and then move their money to Polar Capital once the new fund is up and running.

The nearest equivalent is probably the Man GLG Undervalued Assets fund. This is run by Henry Dixon, who worked with Godber and Hamilton at Matterley, and who uses the same investment process even though his stock selection decisions tend to be quite different.

Dixon’s largest holdings at the end of March included house builders such as Bovis Homes, Bellway and Crest Nicholson, as well as other well-known companies like Royal Bank of Scotland and BP. The £443m fund has about a third of its assets invested in the blue chips of the FTSE 100, with a similar proportion in the mid-caps of the FTSE 250, a fifth in the small caps and most of the rest in cash.

CF Miton UK Value Opportunities has less exposure to the large caps (23.9%) and more to the small caps including stocks listed on AIM (40.6%). Its largest holdings include a couple of housebuilders (Bellway and Barratt), but other than that there doesn’t appear to be very much in common between the two portfolios. This is reflected in the differing performance with Man GLG Undervalued Assets down 7.8% in the last 12 months and Miton UK Value Opportunities up 8.5%.

The departure of Godber and Hamilton has created a difficult dilemma for investors with money in their Miton fund. Unless you are prepared to back a totally different sort of investment approach it is probably best to wait and see who takes over and how they get on. If you are unhappy with the results you could then switch to their Polar Capital replacement.

Nick Sudbury: