nominal in recent months. Mundy concedes that his universe can vary significantly dependent upon market movements.
In general terms, a bear market yields more opportunities because of greater divergence between stocks, though this is not an infallible rule.
“The size of the universe does not really matter to us as long as we have enough stocks to go in the portfolio and enough new stocks to be looking at,”
he says.
“Historically, we have held 60 to 70 stocks, but now we are happy holding 40 stocks. We will hold as many cheap stocks as we can find, but we will not buy lots of stocks just for the sake of diversification.”
For Cautious Managed, Mundy also allocates to fixed interest, which must represent at least 35% of the fund’s value. The preference here is for government bonds rather than investment grade debt, which he considers to be “horrendously” illiquid.
Unlike some of his peers in the IMA Mixed Investment sectors, bonds are held to dampen down volatility rather than add value.
Making mistakes
Alastair Mundy
The real value comes from equity stock selection. Though, given the nature of his approach, Mundy is well aware he and his team will make mistakes in backing companies that are out of favour for good reason.
While he says he makes fewer errors than he did when the funds were first launched, he lists typical poor investments as those backing companies with weak balance sheets, and small caps, which he now avoids.
He adds: “Sometimes it is just investing in companies where you believe there is going to be mean reversion and there is not.
Art, not science
“It is a mistake and you have lost money but, given the same situation again, you would make the same decision.
“You are only playing the averages in fund management anyway so it is not your job to get it 100% right. It is an art, not a science.”
For Mundy, fund management certainly comes across as a craft that is honed though experience, and with this comes an apparent distrust of conventional market wisdom.
“The City is just glorified gambling,” he remarks at one point.
“I would have taken this job in Chingford if there had been an office there.”
This is a man who is clearly quite happy to steer clear of market noise; he prefers quantitative research rather than meeting company management and, aside from those in his team, he does not make a habit of socialising with other fund managers.
So should you invest? The question, Mundy says, is not do you think contrarian investing will work for the next six months, but rather will it deliver over ten years?
He thinks his team has an approach that is durable and, in its originality, blends well with other styles within a portfolio.
“We could be of some use at a dinner party, though you might not want to go out on a date with us,” he quips.
If it is not the kind of self-aggrandising you want from a maverick investor, you will at least appreciate the sentiment.
After all, if we were all in harmony, there would be no contrarians in the first place.
