The recent China-inspired market turmoil did not overly trouble Pease,who has a sanguine outlook and believes that a cool head is vital in fund management.“I try not to get too waylaid by news headlines,” Pease says. “Markets get so emotional with some stocks and quite frightened by headlines sometimes,but I see it as quite exciting to buy things in the sales.“I don’t know what will happen over the next few months but I believe in doing the right things for the next three or four years and beyond.“People can be silly sometimes.
“For example, people say prices are high but they expect them to get a lot higher still because of M&A. Then they forget about M&A when they think there is a trickier macro environment,as we have seen recently with the China issues.“As far as I can tell, we are just questioning how fast China grows. Maybe I’ve missed something but I don’t think I have missed that much.”Part of Pease’s peace of mind over the macro background is his belief that the central banks will hold true to their ‘lower for longer’ mantra.
“We might see some tweaking from the Fed, of course, but you can still do the maths based on low rates.”Pease recently launched the Crux European Fund, which now sits alongside the firmly established European Special Situations Fund he has long managed. While the new fund will have some differences from European Special Situations, Pease’s investment approach will be based on similar processes.“We believe we can build a portfolio yielding 3.5% plus with companies that lend themselves to being bought or buying add-ons themselves in accretive deals,” he says. “You are getting paid a dividend all the time while you hold these kind of stocks,so what’s not to like?”
No growing pains
The investment approach that has served Pease so well over the years is firmly in the bottom-up side of the spectrum, with a few key criteria needing to be met.“We like capex-light businesses that can grow painlessly because they don’t have to write big cheques all the time,” he says.
“Capital-intensive companies often have to invest heavily in emerging markets to grow, which is a risk. Once you have spent the money you can find that the rules change, or the government changes, and it is a different environment.“We like service-based companies that cannot be replaced easily by their customers, providing services that are very important but not expensive,so they are unlikely to get beaten up on price and can handle turbulence better.
We also like businesses where the management are invested and have a lot of their own money to lose in the business.“We try to avoid companies that are likely to make big acquisitions,”Pease says. “Any time I see the word ‘strategic’ attached I think, here we go again. It is a deal that can’t be justified on price. Ultimately, you want under-geared, self-funding businesses that can do buy-backs or pay good dividends.“You also want companies that can be global leaders in their area because they are good at what they do. Dominating your domestic market is one thing but to go to other places and succeed you have to be good,” he adds. Pease’s top 10 holdings include a few familiar names, such as Nordea Bank, UBS and Atlas Copco, as well as one or two that many may not have heard of, such as industrial services company Bureau Veritas.
