Weekend Interview: the investment manager looking for Yorkshire’s many happy returns
It is received wisdom in the world of investing that the markets offering the highest returns are usually rather risky. Sinking your life savings into emerging markets equities, for example, may pay off spectacularly well, but it may also be the worst decision you ever made – volatility is like that.
But portfolio manager Duncan Sanford may have found one market that offers the returns without so much of the nail-biting: Yorkshire.
A director at Surrey-based Mole Valley Asset Management (MVAM), he launched the Yorkshire T20 portfolio in March 2020 and 12 months later its value had soared by a staggering 70 per cent. That’s the kind of return on investment that raises eyebrows.
“We realised that Yorkshire has a lot of global leaders in their particular niche field, so there was an opportunity to invest in very interesting companies that were growing very quickly, but were really hidden underneath the radar,” says Mr Sanford, who runs MVAM’s York office. “We felt there was a huge opportunity for people to invest locally, and it all fits into our ethos of community-based asset management.”
That approach was also the guiding principle behind the company’s Make the World Better portfolio, which invests only in companies that work towards achieving one of the United Nations’ 17 sustainable development goals.
One thing common to both segregated portfolios (never ‘funds’, which have a different legal structure) is that they only invest in 20 stocks, with five per cent of the money going into each one at the start. If the holding tips beyond a certain point, it is pulled back down to five per cent to preserve the balance.
“There’s academic evidence that shows that more than 18 positions leads to over-diversification,” says Mr Sanford. “Now, that’s academia – we realise that in reality you need a few more – but in our focused portfolios, like the T20, we only have 20 positions.”
Mr Sanford works closely with MVAM managing director Craig Harper, with whom he worked at both Daiwa Securities in the 1990s and Nestlé in the decades since, and they operate very much as bottom-up stock-pickers.
“After we launched the York office in February 2019, I spent just over a year researching the [investment] universe,” says Mr Sanford.
“What that means is good, old-fashioned kicking the tyres – going out, talking to the companies and understanding them. I still spend a lot of time doing that, understanding the strategy, and where they’re going in the next three to five years, because for us it’s about the strategic direction and whether there’s a valuation change.
“Value investors are looking for change; they buy low valuation and then wait for the change. Momentum investors don’t want change – they just want the momentum to continue. We sort of pitch ourselves in between.”
Judging by the portfolio’s performance so far, that approach is paying off, but even he concedes that there have been some strokes of good fortune. For example, one T20 investment, Wetherby-based Proactis, saw its share price rocket by 77 per cent in a day on news of a takeover deal. (“It’s probably worth a lot more,” says Mr Sanford.) Another, Wetherby-based biosciences group, Avacta, has risen steadily as its rapid Covid-19 test edges closer to roll-out.
That hasn’t been the only pandemic-related success story. York-based Gear4Music – which Mr Sanford describes as “the Amazon of the music industry” – saw revenues head north as more people took up instruments during lockdown.
“Covid has actually increased the number of opportunities from an individual stock-picking basis,” he says. “Another benefit has been that we’ve found we’ve had much better access to senior management when they’ve been working from home. They are also far more focused on their company’s strategic direction over the next two to five years, and this is a very good thing.”
T20’s other positions include York housebuilder Persimmon, regeneration developer Harworth Group (Rotherham), hydrogen energy pioneer ITM Power (Sheffield), film subtitling and dubbing specialist Zoo Digital (Sheffield), and aquaculture firm Benchmark Holdings (Sheffield), which supplies the eggs for over half the salmon produced in Europe.
“The good thing about being in Yorkshire is that we have a good investment universe to select from,” he says. “People said, ‘oh, you’re just going to have industrial companies’, but that’s not actually right.
“You’ve got companies in healthcare, energy, engineering, IT, consumer staples, finance – the full set.”
One thing they all have in common – apart from the region they sprang from – is their approach to business.
“I particularly like the quality of the management here,” says Mr Sanford, who comes from Dorset but has lived in York long enough to call it home.
“I generally find the management very straightforward and direct – typical Yorkshire style – and I think that’s an advantage.”
Recently the portfolio has moved more into cyclicals, such as Thirsk-based steel firm Severfield, which begs the question: who’s next?
“I’ve got three companies in my sights. Two of them are, I believe, world leaders in their field, and one is a beneficiary of an industry that is turning around,” says Mr Sanford.
“But obviously I’m not going to disclose them to you,” he adds, disappointingly.
Born in Dorset, Duncan Sanford first became interested in investment aged 14, when he was introduced to the Financial Times by a teacher who “always seemed to have some money”.
After a spell as a management trainee with Lloyds Bank, he went to London Guildhall University, where in 1997 he took a first in Business Studies (Securities and Commodities).
He joined Daiwa SB Investments and was made pan-European fund manager within four months.
He then moved to Nestlé for 15 years, working in York and in Switzerland, becoming CEO and CIO for Nestlé Capital Management Ltd.
He joined Mole Valley Asset Management in 2018, launching its York office in 2019.
Married with three boys, he lives near York and coaches junior cricket at Bolton Percy.