Where to Invest: Introducing Metro’s new weekly market tips

Welcome to Metro’s new weekly column for anyone looking for fresh ideas and insight into where they might invest their savings.

Each week, we’ll take an in depth look at a different fund, uncovering how it chooses the companies it invests in and what type of investor could benefit from buying in.

We’ll speak to the fund managers themselves and to a range of independent financial advisers, investment research directors and specialists from across the industry.

Our goal is to help investors learn more about what goes on behind the scenes in a fund – to make sense of why it matters and what to look out for when considering a new investment.

We’re planning to cover big themes such as global equities, the best of British companies, where to look if you’re a cautious investor, where and how to seek higher risk funds with the potential to earn higher returns.

We’ll also look at funds that focus much more narrowly on specific areas or geographies.

From clean energy, artificial intelligence and big tech all the way through to more controversial sectors such as defence, fossil fuels and tobacco.

From more developed European and US markets to emerging markets, and the increasingly developed equity markets in China, Japan and India.

If there’s something specific you’d like us to cover, email sarah.davidson@metro.co.uk with your requests.

This week, we’re kicking off with Alexandra Jackson, who manages the Rathbone UK Opportunities Fund, which focuses on UK mid and small caps, predominantly.

Tell me a bit about how you choose the companies you invest in?

Having earned my stripes working on a global equity fund for seven years before getting my own fund, I have a high bar for what a great company looks like. I want holders of my fund to own world-class businesses that can grow profits over time and reinvest in themselves to expand further (rather than simply pay it all out in dividends).

We look first at the ‘quality’ of a business. How much debt does it have? How much profit does it make from sales after paying its bills, and how does that change as sales rise and fall? How good are its managers? Then we assess its ability to grow. Does it have any advantages over rivals? Is the market for what it sells growing, or is it full of smaller competitors who can be bought up? Are there impediments that make growth harder?

Finally, we look at the price: that can make the difference between a good investment and a bad one, even if the business itself is brilliant. The result of this quality-first process is that the vast majority of my fund is invested in small/mid-cap companies (below £10billion market cap).

What makes one company stand out from the crowd?

True active management means buying stocks that differ markedly from a fund’s benchmark — for my fund that’s the FTSE All-Share Index. This means performance will also differ significantly from the benchmark.

Our top 10, for example, looks very different to the FTSE All-Share and other funds like ours, as we’re trying to offer something unique. If a company doesn’t hit our quality and growth milestones, we don’t own it, no matter how big it is in the benchmark.

What sectors are you particularly keen on at the moment?

UK industrials and real estate get me excited right now. We’ve found several engineering companies making niche componentry that’s a small but essential part of a bigger bit of kit. This means they can increase prices without annoying customers, and it leads to sticky revenue, which adds protection to a business.

Real estate should benefit from continued interest rate cuts that we expect to resume from December, and also from continued mergers as private/long-term investors take advantage of huge discounts on commercial property. I also have a big overweight in tech, but I’m selective around those businesses that will benefit from AI-adoption and those that risk being put out of business.

How does the current economic environment affect your investment strategy?

Over the last 20 years, we see that investment outperformance in the UK market tends to come from the FTSE 250 rather than FTSE 100. This hasn’t happened over recent years because of concerns about the health of the UK economy, high interest rates and probably also index-tracking ETF flows that tend to focus on large-caps. So we’re now in the unusual position that the FTSE 250 is trading cheaper than the FTSE 100, which looks like an interesting opportunity.

What type of retail investor might consider investing in your fund and why?

We always recommend any investor first speaks with a financial adviser before investing. I run this fund for investors who want to own the best quality growth companies listed in the UK, without worrying too much which industry or sub-index each company sits in.

Investing in stocks is a long-term game though, so you should expect to hold it for at least seven years. It’s important to diversify your investments as well, so this could useful paired with other funds that seek to do something different.

Anything else you think investors considering your fund might be interested in?

The FTSE All-Share has done extremely well so far this year, outperforming other developed markets, yet this has gone under the radar.

We Brits risk being so tuned into the admittedly constant and negative noise around politics and the economy that we miss the real story: a market that is cheap enough and cheerful enough to allow for some appealing returns.

We hope the coming Budget will answer some of the uncertainty around tax and spending which has dragged on the UK economy recently. If it does bring this clarity, we believe it could be a clearing event for the UK and would be particularly beneficial for the small and mid-cap names that make up the majority of my fund.

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