He uses a traditional bottom up stockpicking approach when it comes to investing and tries to ignore market noise as much as possible. He currently runs the MFM Slater Recovery, MFM Slater Growth and MFM Slater Income funds. This strategy has certainly worked for him during a career running funds which spans back nearly 15 years. He has returned 158.09 per cent to his investors over that time, while his peer group composite has returned 60.53 per cent.
Performance of manager versus peer group composite since August 1999
Source: FE Analytics
A product of his style, he predominantly focuses on long term, high quality growth companies that can deliver steady annual returns and offer a growing dividend.
However, he says that periods of high volatility – like we have seen this week – have provided him with value opportunities which don’t come along too often.
“Sell-offs like we have seen recently doesn’t make me like or dislike any of the stocks I hold, as my opinion of them doesn’t change,” Slater told FE Trustnet.
“What it does mean is that if there are companies we like but their price limit has been above what we want – and it has come down – then we will add to it as we are more likely to buy it at a better price.”
“If there is a stock which has completely fallen out of bed, we will add more to it than usual,” he added.
This happened in the case of FTSE AIM listed energy company, Cape. Slater says he aggressively bought the stock in the aftermath of the financial crash as he felt it was grossly undervalued.
“One that we did very well with was Cape, the oil and gas company,” he said.
“It was a company that we already held, but in quite a small amount. However, in March 2009 the share price had fallen from around 300p to around 17p. Nevertheless, its earnings were strong and the company was growing well.”
“We started buying it again on a P/E of 0.5. The reason for that was because it had debt on its balance sheet, though there wasn’t much. At the time people felt any debt on a balance sheet was too much,” he explained.
A company’s price to earnings ratio (P/E) is calculated by dividing its current share price by its earnings per share. In theory, if a company is trading on a lower P/E ratio – in comparison to the market – it is seen as cheap.
Slater continued: “We looked pretty hard at the company and decided that it wasn’t going to go bust. We continued to trade and we bought 3 per cent of the company and increased that up to around 9 per cent over two years.”
“We started selling it when it hit 570p and brought our holding down to 1 per cent. It was very rapid and we multiplied our money by about 25 times.”
“It was quite a peculiar move for us because our bread and butter is to look for quality income and growth style companies. However, we felt that the market was overly fixated on the company’s debt.”
“It was a function of the crisis, but we felt it was drastically undervalued. However, the company has since had problems,” he added.
According to FE Analytics, between March 2009 and March 2011 investors in Cape would have seen returns of 2,116.38 per cent. That means that if an investor had been brave enough to buy £1,000 worth of stock in Cape they would have received £22,163.76 after two years.
Performance of stock between March 2009 and March 2011
Source: FE Analytics
Slater admits that was a very unique opportunity, and highlights Domino’s Pizza Group as one that is more in keeping with his investment style.
“One of our more typical holdings is Domino’s,” he said. “We bought it back in 2002 and 2003 and it has had earnings growth well over 10 per cent per annum since. It is more akin to our style and is a very good example; unfortunately not all our holdings have performed as well.”
“We bought the company as it was high in quality and had a lot of headroom to grow. It was on 10 times earnings when we bought it and now it is on 77 times earnings. It was a more typical holding as it did its thing day-by-day and over time performed well.”
“Cape on the other hand, was extraordinary,” he added.
Domino’s Pizza Group has returned 2,068.85 per cent over the 10 years, so investors who put £1,000 in a decade ago would now be sitting on £21,688.53.
Performance of stock over 10yrs
Source: FE Analytics
There are six funds in the IMA universe that count Domino’s Pizza Group as a top-10 holding. Among these are FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies fund and Giles Hargreave’s Marlborough UK Leading Companies fund.
Looking to the future, Slater is tipping FTSE AIM listed healthcare company Hutchison China MediTech for long term success.
“In terms of what we own today, I don’t think there is anything that can make us 25 times our money like Cape – but I am very happy to be wrong on that,” he joked.
“But there are companies that have the scope to do similar things to Dominos. One of which is Hutchison China MediTech.”
“We started buying it in early 2010, buying most of our initial stake between 180p and 200p. Subsequently we have paid much more than that. It is currently 500p.”
Our data shows that Hutchison China MediTech has returned 149.87 per cent since the start of 2010 – albeit with a high amount of volatility.
Performance of stock since January 2010
Source: FE Analytics
“It is a very profitable business in China. The company makes both prescription and non-prescription traditional Chinese medication,” Slater explained.
“That part of the company has delivered 20 per cent earnings growth, but it has also developed a new drug R&D business. It has made a number of important breakthroughs and now has a lot of IP, some of which it is licensing with the likes of AstraZeneca and Nestle.”
“One of the reasons we like it is because 71 per cent of it is owned by Hutchison Whampoa. That is company which is run by Li Ka Shing, who is often referred to as the Chinese Warren Buffet.”
“He has a lot of political clout and will want to protect his reputation. It also dodges the issue of poor corporate governance that you can get by investing in China,” he added.
Slater counts Hutchison China MediTech as a top-10 holding in his MFM Slater Growth and his MFM Slater Recovery funds. However, no other portfolios in the IMA universe have it in their top 10.