Paul Mumford, the veteran manager of the Cavendish UK Opportunities fund, has been buying shares in retailer Next, despite the shares falling almost 40 per cent in a year.
Next delivered a much worse than expected trading update last week, sending the shares, which had already been battered by the shift in sentiment away from UK domestic stocks, into a deeper tailspin.
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Mumford became a buyer of the stock at that point. He told What Investment that, ‘As a counter cyclical investor I tend to buy the areas of the market that are out of favour. Last year that was oil and gas, which is recovering but I think has room to run. Before that it was the housebuilders, and before that the banks. Right now, it is the UK domestic stocks. That sector has been out of favour because of the fall in sterling. I take the view that sterling could fall a bit further from here, usually an out of favour asset has to fall to the point where it is absurdly cheap before it rises. I would much rather own sterling than the euro, which is a currency with deep structural flaws.’
He continued, ‘So when I look at Next, I see a stock that I think will recover, and while I wait for it to recover, the shares pay a very attractive yield.’
Two other domestic stocks in which he has recently invested are pub companies Greene King and Martsons.
The property company Daejan Holdings is a significant investment for him, he remarked that, ‘I tend to dip in and out of the share, depending on the valuation, but the property assets it owns are conservatively valued.’
The oil stock in which he has been making a profit having bought it last year is Ithica Energy. This is the largest investment in both his UK Opportunities and UK Select fund.
Mumford said, ‘When the oil price fell, the companies were able to cut costs of production. So if there production cost had been $40 they could get it down to $20, and now that the oil price is recovering, they can pay their debt down very quickly.’
He has taken profits on his shares in supermarket company Morrisons’ in light of the recent positive trading update, and switched into J. Sainsbury.
Mumford said, ‘The key with Sainsbury might be the benefit from the Argos acquisition. Lots of Argos stores have leases that expire within the next five years, and Sainsbury has lots of surplus space in its stores. The deal with Argos also means there will be a wider range of products they can offer.’
The Cavendish UK Opportunities Fund has returned 109 per cent over the past five years, compared to 69 per cent for the average fund in the IA UK All Companies sector in the same time period.
Mumford recently published a book called The Stock Picker.
