Q:  What are your core beliefs in managing money and how they differentiate you from your peer group?

A: Our philosophy is built around a few basic points, which we adhere to for all of our funds. The first point is that we believe in long-term investing and that leads to a low portfolio turnover. It’s often very tempting to take profits when investments do well in the short run, but this approach often misses the substantially better returns that can be achieved if you take a long-term view. I think that people often have time horizons that are too short.

We are contra-cyclical, which means that we focus on market areas that are temporarily out of favour when we invest new money. A key element of our investment approach is that we’re not momentum players and we don’t chase the latest hot stocks. We also tend to run portfolios with quite a large number of stocks to help manage risk.

Q:  What is long and short term in your view?

A: That’s a difficult question to answer but what I would say is that we generally hold stocks in our portfolios for many years. In some of our long established funds we’ve had holdings which have been there for 30 or 40 years. Wesleyan Growth Trust has only been in existence for about 10 years but even here we would have holdings going back to when the fund first started. Obviously this is not the case for every stock in the portfolio, but on average, our turnover would be less than 10%.

Q:  What kind of fundamental investment criteria do you have for selecting stocks?

A: This is predominantly a blue chip portfolio so it’s mainly invested in large-cap stocks. We prefer more established companies, which have been around a while and have a track record of consistent profitability, dividend payments, and relatively attractive assets. We look at the competitive advantage of companies and their general level of asset backing to avoid companies with balance sheets built on intangibles.

It is a UK fund, benchmarked against the FTSE All Share Index, and we overlay our key investment approaches against that benchmark.

Q:  How do you find new ideas and how do you turn them into holdings? What are the key elements of your research process?

A: We have access to a significant amount of information. A lot of external broker research comes in on a regular basis, and on top of that, we go out and see a lot of companies, probably about 400 a year. Our research process involves going through all the information and filtering it down with a long-term perspective. Our approach is all about identifying long-term investment opportunities and we tr y to avoid being too focused on short-term market movements. The research we carr y out represents an ongoing information building process.

We’ve got a team of people who have been together for quite a long time and that’s another strength we have. The core fund management team has been together for over ten years. That gives us an advantage in that when we meet companies on a regular basis we can check the consistency of the messages they’ve been giving us through the years. So we do look for consistency when we meet the companies, as we need to feel confident with them.

It’s important to hear that when the managers says something, then six months later, it’s actually put into practice, or is broadly developed as they’ve expected. In that way you get more confidence in the future of a company. If you meet people who are constantly giving you mixed messages, then it’s more difficult to build that confidence.

We also use the usual fundamental valuation tools such as earnings and dividend ratios as well as forecast growth rates. We tr y to put a reality check on the market forecasts out there and consider the situation if the growth comes through as expected over a number of years. So we are attracted to fundamental valuation tools like price-to-earnings and dividend yields. We place emphasis on dividend income as we believe that if a company has solid and growing income, then this will ultimately lead to capital appreciation.

Q:  How important is the cash flow in your valuation method?

A: I think that cash flow is important and we consider both cash flow and earnings. Cash flow gives you an indication of the quality of the underlying profits of an organization and the likely sustainability of those profits. But I wouldn’t describe us as strict value investors; we’re more flexible than that in our approach. I think it is difficult to put labels, such as ‘growth-at-reasonableprice’ or ‘value’, to describe our investment style. I never like to put ourselves in any particular box because we like to maintain flexibility.

Q:  You mentioned that dividends are an important part of a company’s valuation. Do you also consider the growth of the dividends?

A: It has to be a combination of the dividend and its growth. The cash flow analysis gives you an indication of how sustainable the dividend is and the likelihood of that dividend to grow in the future.

Q:  How do you construct your portfolio in terms of sector weightings, number of stocks, etc? What rules do you follow in that respect?

A: We start with what the index looks like and then we’ll take positions overweight or underweight against that index. Because of the large number of stocks that we hold, we have exposure in all the main sectors and any deviations from the index are controlled, so we tend to be at the lower risk end of the equity funds.

The fund is almost entirely invested in the UK. There’s no fixed number of fund holdings but at the moment we’re running between 140 and 150 names. The average position is less than 1% but it’s rather distorted by the big holdings in some of the larger stocks.