Unconstrained investing

Fund updates

M&G UK Growth Fund

02/10/2014

Mike Felton, manager of the M&G UK Growth Fund, follows a valuationdriven, high-conviction investment approach. Here, he outlines what he looks for in potential investments and how he constructs the portfolio.

Whats in the price?

We are always driven by valuation. The team does not attempt to employ any single valuation methodology. Instead, it looks at a range of measures, emphasising those that experience has shown best suit each individual stock or sector. At all times, the question we are trying to answer is whats in the price? In other words, are the prospects of investing in a particular company better or worse than those implied by the share price.

A pragmatic approach

We have no predefined investment style, as we believe this restricts our ability to access some of the most attractive opportunities in the UK market. Therefore, we are neither growth nor value investors, in the traditional sense of these labels. Rather, we adopt a pragmatic approach appropriate to prevailing market conditions. At times, this will reward a preference for growth, at other times this will favour value. Driving our thoughts here is the view that the definition of what represents growth and what represents value is unclear and subject to constant change according to valuation; yesterdays growth stock could become todays value stock and vice versa.

Macro views guide portfolio construction

Once the idea generation process and valuation work has been conducted on a stock, the subsequent decision to build a new position or to dispose of an existing holding will be guided by our view of the macroeconomic environment and whether the stock is appropriate to the strategic positioning of the fund.

To emphasise, fund activity will at all times be driven by the specific merits of the individual stock; our macroeconomic/ strategic overlay acts as a guide in the investment decision-making process. If there is no strong view, portfolio construction will be based on stock selection alone.

Over time, the application of a top-down element to the portfolio construction process has helped the fund to record material outperformance in times of heightened macroeconomic influence. Indeed, bottom-up or top-down, neither has a monopoly on insight.

High-conviction holdings

Finally, the team targets a total of around 50 holdings. This relatively concentrated target number ensures that each holding will be of a sufficient size to make a real difference to fund performance. This means we need to have strong conviction that every stock in the portfolio represents an attractive investment opportunity.

We do not trade positions on a short time-frame; we subscribe to the broader M&G philosophy of long-term investing. However, if a stock delivers what is expected of it in just a few months, and we consider the long-term upside to be in the price, then the concentrated nature of the fund predisposes us to rotate into a new investment that offers greater upside potential.

The value of stockmarket investments will fluctuate, which will cause Fund prices to fall as well as rise and investors may not get back the original amount invested. For Investment Professionals, Institutional Investors, and Professional Investors only. Not for onward distribution. No other persons should rely on any information contained within. FOR USE IN THE UNITED KINGDOM AND THE COUNTRIES MENTIONED BELOW: For Switzerland: Distribution of this document in or from Switzerland is not permissible with the exception of the distribution to Qualified Investors according to the Swiss Collective Investment Schemes Act, the Swiss Collective Investment Schemes Ordinance and the respective Circular issued by the Swiss supervisory authority (Qualified Investors). Supplied for the use by the initial recipient (provided it is a Qualified Investor) only. In Spain the M&G Investment Funds are registered for public distribution under Art. 15 of Act 35/2003 on Collective Investment Schemes as follows: M&G Investment Funds (1) reg. no 390, M&G Investment Funds (2) reg. no 601, M&G Investment Funds (3) reg. no 391, M&G Investment Funds (5) reg. no 972, M&G Investment Funds (7) reg. no 541, M&G Investment Funds (8) reg. no 1100, M&G Investment Funds (9) reg. no 930, M&G Investment Funds (14) reg. no 1243, M&G Global Dividend Fund reg. no 713 M&G Dynamic Allocation Fund reg. no 843, M&G Global Macro Bond Fund reg. no 1056 and M&G Optimal Income Fund reg. no 522. The collective investment schemes referred to in this document (the Schemes) are open-ended investment companies with variable capital, incorporated in England and Wales. In the Netherlands, all funds referred to are registered with the Dutch regulator, the AFM. For Hong Kong only: Some of the Funds referred to in this document may not be authorised by the Securities & Futures Commission of Hong Kong (the SFC‟) and may not be offered to the retail public in Hong Kong. The Funds may only be offered to Professional Investors (as defined in the Securities and Futures Ordinance). If you have any questions about this financial promotion please contact M&G Investments (Hong Kong) Limited. For Singapore only: The Funds referred to in this document are not authorised by the Monetary Authority of Singapore (MAS) and are not registered for public distribution in Singapore. M&G Investments (Hong Kong) Limited and M&G International Investments Limited and the Funds referred to in this document may not be authorised, recognised or regulated by the local regulator in your jurisdiction. This information is not an offer or solicitation of an offer for the purchase or sale of investment shares in one of the Funds referred to herein. Purchases of a Fund should be based on the current Prospectus. The Instrument of Incorporation Prospectus, Key Investor Information Document, the, annual or interim Investment Report and Financial Statements, are available free of charge, in paper form, from the ACD: M&G Securities Limited, Laurence Pountney Hill, London, EC4R 0HH, GB, or one of the following: M&G International Investments Limited, German branch, mainBuilding, Taunusanlage 19, 60325 Frankfurt am Main, the German paying agent J.P. Morgan AG, Junghofstrae 14, D-60311 Frankfurt am Main, the Austrian paying agent, Raiffeisen Bank International A.G. Am Stadtpark 9, A-1030 Wien, the Luxembourg paying agent, J.P. Morgan Bank Luxembourg S.A. European Bank & Business Center, 6 c route de Treves, 2633 Senningerberg, Luxembourg, the Danish paying agent, Nordea Bank Danmark A/S Issuer Services, Securities Services, Hermes Hus, Helgeshj All 33, Postbox 850, DK-0900, Copenhagen C, Denmark, Allfunds Bank, Calle Estafeta, No 6 Complejo Plaza de la Fuente, La Moraleja, 28109, Alcobendas, Madrid, M&G International Investments Limited, the French branch, or from the French centralising agent of the Fund: RBC Dexia Investors Services Bank France For Switzerland: Please refer to M&G International Investments Ltd. mainBuilding, Taunusanlage 19, 60325 Frankfurt am Main or, for Sweden, from the paying agent, Skandinaviska Enskilda Banken AB (publ), Sergels Torg 2, 106 40 Stockholm, Sweden. For Italy, they can also be obtained on the website: www.mandgitalia.it. Before subscribing investors should read the Prospectus, which includes investment risks relating to these funds. This financial promotion is issued by M&G Securities Limited and M&G International Investments Ltd. Both are authorised and regulated by the Financial Conduct Authority in the United Kingdom and have their registered offices at Laurence Pountney Hill, London EC4R 0HH. This financial promotion is further issued by M&G Investments (Hong Kong) Limited. Office: Unit 4628, Level 46, The Center, 99 Queens Road, Central, Hong Kong. M&G International Investments Ltd is registered in England, No. 4134655. It also has a branch located in France, 6 rue Lamennais, Paris 75008, registered on the Trade Register of Paris, No 499 832 400 and is also registered with the CNMV in Spain. FOR USE IN ALL OTHER JURISDICTIONS NOT MENTIONED ABOVE (EXCLUDING THE USA): This financial promotion is issued by M&G International Investments Ltd. Registered Office: Laurence Pountney Hill, London EC4R 0HH, authorised and regulated in the United Kingdom by the Financial Conduct Authority. M&G International Investments Ltd and the funds referred to in this document may not be authorised, recognised or regulated by the local regulator in your jurisdiction. This information is not an offer or solicitation of an offer for the purchase or sale of investment shares in one of the funds referred to herein. S9109 OCT 14 / 51569