Fund Manager Focus by Rob Langston

Giles Hargreave commands a strong reputation given his long career in the investment arena, which began in the late 1960s.

Managing two funds – the Marlborough Special Situations and UK Micro Cap Growth – and co-managing a third, Giles Hargreave has accumulated a wealth of knowledge and experience over the past four decades. He is a renowned figure in the industry and is best known in his role as chairman and chief executive of Hargreave Hale, the nationwide stockbroking and investment management business.

The manager has had responsibility for the Marlborough Special Situations fund for more than ten years, during which time the fund has grown to over £400 million. The fund aims for capital growth by investing in smaller companies, new issues and those companies encountering a difficult period with good recovery prospects.

‘At the moment, we prefer stocks that are basically special situations that don’t have anything much to do with the general economy,’ explains Hargreave. ‘I generally avoid UK-centric stocks. Other managers are buying retailers and housebuilders, but I don’t want to be in the stocks that depend on the UK economy because it’s not growing very fast.’

Strong balance sheets
The manager says he prefers companies where directors have their own holdings and those with strong balance sheets.

Although he does not take a sector view, the portfolio is heavily weighted towards industrials. Hargreave says this is more a result of the fundamentals of the individual companies. Indeed, of the fund’s top 10 holdings, seven belong to the industrials sector, yet this may not be indicative of the company’s actual focus.

Investment company Ocean Wilson is the portfolio’s second-largest holding at 1.6 per cent of the portfolio – what Hargreave describes as ‘very much a special situations stock’, highlighting its 58 per cent stake in Brazilian port logistics company Wilsons.

‘It’s a great share that we’ve held for a long time, and we have no plans to sell,’ he adds.

Another industrial company, plastic packager RPC Group, is the fund’s third top holding. It unveiled ‘very, very good results’ recently, according to Hargreave, adding, ‘It’s showing very significant growth at the moment and made very good acquisitions.’

Top dog
The fund’s largest holding is Elementis, the chemicals company, which Hargreave believes should be viewed as a specialist chemicals company instead of being lumped in the basic materials sector. He says the company is currently being rerated and had recently reached levels around 167p, although not as high as its 169.8p 12-month high.

Other industrials included in the portfolio include Kofax, TT Electronics, Melrose and Andor Technology. Belfast-based medical camera manufacturer Andor is described by Hargreave as ‘brilliant’. He adds, ‘It’s the best company we own; we started buying at less than £1 and then bought it all the way up.’

Also included in the fund’s portfolio is the FTSE 100 engineering group IMI. Despite the inclusion of the blue-chip company, the majority of the fund’s portfolio – around 77.8 per cent – is invested in companies with a market capitalisation of less than £1 billion. ‘I tend to own one blue-chip in the fund, which gives [the portfolio] a bit of extra liquidity,’ he explains.

The fund also holds one interesting overseas-based stock in its top ten holdings – XP Power, a power supply company set to take advantage from the ever-growing Chinese economy.

Another holding the manager is bullish about is Kofax, an American UK-listed software company. Hargreave says the company had recently sold its hardware business to concentrate on software and had seen its share price double in the past year.

He adds, ‘What’s quite likely to happen is a move to the US NASDAQ index, and if they do that then it will only double again.'