Bestinvest says
This fund is built around the philosophy that on average, fast growing cheap stocks with good news flow outperform slow growing expensive stocks with bad news flow. To find companies displaying such characteristics, the team screen for stocks using their proprietary screening model, which throws up enough stocks so that the fund does does not take large bets relative to its benchmark, the FTSE All Share. Whilst the investment process has merit we believe the fund's rigid portfolio constraints leads to reasonably close alignment with the Index. This is fine when a passive/tracker fee is charged, but not as in this instance when investors are paying a higher fee than they would expect to pay for a more actively managed fund. Those investors seeking full active management should consider one of our recommended funds within the UK All Companies sector.
The managers believe that portfolio construction is of fundamental importance and have a highly disciplined strategy in this regard.
The in house quants screen, TMV (Trends, Momentum & Value) looks at three different factors. The value of stocks based on different price ratios, specifically one-year forward earnings (P/E multiple); Earnings revisions (broker upgrades or downgrades) on a 3 month basis as the managers believe investors tend to react to good and bad news on companies, resulting in a strong correlation between earnings revision and share price performance and Momentum as their analysis shows that stocks tend to out perform for extended periods.
Over 900 stocks are monitored in this way and are subsequently rated 1-5 and tracked, the most attractive are then investigated by the research team to verify the results.
The portfolio construction centres around using this bottom-up process to identify areas of the market that the managers believe are cheap. The fund is then built around it. The aim is to buy as many stocks as possible without diluting the performance characteristics that they are targeting. Whilst this helps to diversify risk it means that bets relative to the benchmark are relatively small.