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Jeremy Lang seeks stocks which have persistently ‘surprised’ - companies which repeatedly produce better results than expected. Only companies followed by at least 3 analysts are considered - the investment universe is largely the FTSE 350 segment. The two main criteria are : whether the average analyst forecast for the next fiscal year finished higher than when it started, and whether there have been more upgrades than downgrades during the year.
The manager is keen to exploit investor psychology by recognising that others take a long time to admit they are wrong and therefore change their minds. This allows for stocks to continue to surprise. He has also determined that many stocks are "anchored" to their sectors in terms of how an analyst perceives them, i.e. when making forecasts their is a tendency to focus around the average. This can be exploited if a company has little in common with the sector as a whole, e.g. medical product suppliers within the pharmaceutical sector.