A safe bet
A further example could be Betfair, Thomas’ largest holding at around 5.5% of the fund. Its £5bn merger with Paddy Power is set to propel it into the main index.
“I met with CEO Breon Corcoran when he came in to turn the business around, and he has done a great job, to the point where we got a £200m special dividend last year. I met him early, so I bought 6% of company and shares have gone from £9.50 two and a half years ago to £39 today.”
Strong performance of the fund in 2015 was down in part to what Thomas calls his “thrusting three” – Befair, Auto Trader and Rightmove – as well as other big contributors ITV and RPC, a plastics company that has benefited from low oil prices.
A preference is for companies like Betfair, Rightmove and ITV, which will convert 100% of their profits into cash. He also points to Next, which he says has retired 60% of its equity during the past 14 years via share buybacks: a boon for dividend growth.
“It has had no like-for-like in its shops since 2005, though online has been very successful.
“However, I have been selling Next shares recently, first, because it got to the point where it wasn’t doing share buybacks and, second, because it is going to be incrementally more difficult to grow online from £1bn to £1.2bn, etc. I did have around 2% in the company but it is now 0.6%.”
While Next remains a mainstay among many UK stockpickers, Thomas also stresses he keeps a close eye on its competitors listed on other exchanges, such as H&M in Sweden and Zara in Spain.
Beyond these shores
On a related topic, while the UK consumer plays a big role in the success of his fund, he is also fully aware of the international slant of the FTSE All-Share, with around only 44% of its revenues derived from the UK.
Recent purchases include the London Stock Exchange, Worldpay – linked to growth in e-commerce – and Immarsat, which promises expansion through connectivity on airlines, while also operating satellites orbiting the globe.
“This year is going to be a lot tougher than last year and, at some point, I think there will be a mean reversion back into large oil,” says Thomas. “But I’ve also been adding to Glaxo and AstraZeneca lately. Whereas BHP Billiton will cut dividends – and Shell could – that’s why Glaxo looks like a more solid place to be post the Novartis deal.”
Thomas actually sold out of mining shares – BHP Billiton and Rio Tinto – last year on the back of a trip to China.
“There is a big correlation between property construction and steel and there was a lot of empty buildings. Somebody quoted Chinese steel companies as loosing $56 a tonne, which can’t be sustainable.
“A lot of this business is keeping your ears and eyes open. It was useful for me to go and see what was happening in China, rather than listening to myriad different opinions. Electricity consumption, rail freight and steel are not the best things to look at. Instead, look at things such as air travel miles, cinema attendance or credit card usage.”
With this in mind, Thomas and the team of seven on Axa’s UK desk spend much of their time on the ground meeting companies. St John, for example, was recently at Betfair’s Hammersmith head office on a Monday night to see how it constructs betting odds during a live Premier League game.
“My investment motto is, things won’t necessarily become better or worse, they become different,” says Thomas. “I was quoted as saying that in 1998 and I still believe that change happens and you have to invest in good people in companies who can cope with that and adapt. Meeting management is absolutely key to what we try and do.”
