Hugh Grieves, Fund Manager of the Premier Miton US Opportunities Fund, looks back over his investment career, discusses his investment approach and highlights why dull boring businesses are the cornerstone of the fund’s investment portfolio.
For information purposes only. Any views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
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The internet boom and bust
My career in fund management coincided with the emergence of the internet as an investment theme. Just a few weeks before I began work, Netscape, the developer of the first widely used internet browser, listed on the American Nasdaq exchange. Back then it was revolutionary for a company that had never made a profit to go public which seems quaint today. Netscape was quickly followed by Yahoo!, then the leading search engine, and soon a torrent of others followed. But within a few years boom had turned to bust as hype gave way to reality. Although the internet has delivered so much over the last three decades, most of the original trailblazers have crashed and burned. The experience also left a lasting impression on me and how I think about investing.
The hare or the tortoise?
Rather than chase the latest investment trend which promises soon-to-be-fulfilled riches to anyone prepared to believe, I have always preferred the tortoise-inspired approach rather than the hare’s. Even when the hare appears to be effortlessly far ahead, slow and steady will eventually overcome. This leads us to look for often dull and boring businesses which can consistently reinvest returns to generate additional returns year after year, each year slightly ahead of the previous year, known as compounding. These companies often have high market share, meaning they control a large portion of the market for their products or services, in reliably growing markets, face limited pressure from competitors, customers, or suppliers, and with limited requirement for capital investment to support that growth, are able to return excess capital to shareholders through dividends and share buybacks. Once we find companies like these, we patiently wait for an opportunity to make a purchase at a good price.
Markets can sometimes be irrational and occasionally make a mistake, pushing share prices too low as well as too high, as investors react emotionally to new information. At times like these, the valuation of a company may fall to a low enough level where we believe we have a sufficient margin of safety, so that if we have made a mistake or something unexpected occurs, we can minimise any loss. But if we are right, we get the benefit of the future earnings growth for the years and years that we continue to hold the shares.
Putting it into practice
One such example is our holding in Service Corp which we originally purchased in the Premier Miton US Opportunities Fund a decade ago* and have held continuously ever since. The company is by far the largest owner-operator of funeral homes and cemeteries in America. Almost as certainly as there are death and taxes, Service Corp has delivered outstanding results year after year with little drama or excitement as the reality of a growing population meets the limits of available space for internment. This of course is not guaranteed to continue. A more recent purchase is Rollins, the leading pest control business in America. Pest control is a ‘must have’ product which in America benefits from two long-term trends; people are migrating South, and bugs with help from climate change, are migrating North. More people are meeting more bugs, which means steadily more business for Rollins.
Final word
When everyone else is excited by the seemingly endless opportunities of Artificial Intelligence, reminding me of the enthusiasm for the ‘information superhighway’ thirty years ago, it is hard not get to swept along, especially when the S&P 500 Index is now dominated by just a handful of behemoths that are seen as AI beneficiaries. But instead, I get excited about the opportunities for our companies in the fund to continue to steadily compound one year at a time, even if they are never going to change the world tomorrow.
*Purchased 26/02/2015.