There are only a couple of differences, he says. The first is the market cap of companies in the new portfolio is broader, with about 50% in large and 50% in mid- and small-cap shares, with a minimum market cap of £100m. In previous funds, the exposure to large cap hovered around the 77% mark, he notes.
The other difference, aside from the volume of assets under management (the GAM fund has £30m), is that he has adopted a different approach to measuring company risk.
He explains: “This is paying particular attention to company balance sheets using Piotroski scores, which are measures of changes within a business. It enables me to have a dashboard on companies to observe who is going left and right of where I want them to be.”
This approach enables Gosden to sharpen his sell discipline, which he says is integral to successful portfolio management.
“The Holy Grail of fund management is not buying shares that go up, but selling things you get wrong and not allowing them to pollute the portfolio for too long. If you can improve your selling discipline you will be adding materially to fund performance. “It is easy to sell when you have made a profit, it is when shares fall 10% and you step up and say, ‘I’m selling’.”
Recipe for success
It is this disciplined approach that has served Gosden well to date. At Artemis, he co-managed the £6.1bn Artemis Income Fund with Frost and Nick Shenton, and the £1.1bn Artemis High Income Fund with Alex Ralph.
The former has returned 73.8% over five years versus 69% for the IA UK Equity Income sector average, while the latter has returned 47.3% over the same period against 23.7% for the IA Sterling Strategic Bond peer group. It’s a tough act to follow.
Gosden’s portfolio is built from the bottom up on a stock-by-stock basis and targets about 50 companies. He is not precious about this number but says 20 stocks would be too volatile while 100 is too long as he wants to keep a handle on the companies he invests in.
The fund’s £30m AUM includes Gosden’s own cash. In terms of how big it could grow, he says the sweet spot would be £2-3bn because at this size the fund is still capable of “doing what it says on the tin”.
Companies are assessed on their cashflow merits and whether they re-invest in the business because it is integral to the portfolio that “tomorrow’s dividend is better than today’s”.
He then undertakes an industry analysis to avoid venturing down any blind alleys, meets with company management and looks at valuations on several metrics including cashflow, dividends, price-to-book and price-to-earnings.
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