Being a successful fund manager typically means taking a different viewpoint from the market in order to outperform a benchmark. It requires skill in knowing when to buy and sell and doing so at an advantageous price.

The fund manager needs to question everything that’s going on in the markets and have the ability to take a view on what might happen in the future.

Alex Crooke has demonstrated those skills through his success at running Bankers Investment Trust (BNKR) since 2003.

Part of Janus Henderson Investors’ portfolio of investment trusts, Bankers has delivered a 141.8% total return over the past decade versus 71.4% from the FTSE All-Share index, according to figures from the asset manager.

Staying focused

Crooke and his team appear to have an edge in their ability not to be distracted by market noise and politics; and instead look at themes, data, valuation and financial strength in order to make informed investment decisions.

Having a clear head and remaining focused has been a challenge for many investors over the past year or so, particularly in the wake of major votes in the UK, US and France.

Some fund managers repositioned their portfolios in response to the election results and how they feel government policies will play out for industry.

The team at Bankers have chosen to put politics to one side. For example, writing in the trust’s recent annual report, they discussed the impact of Donald Trump becoming US president on the markets.

‘Many market participants will be drawn into attempts to forecast the short term course of the US economy under the new presidential administration,’ writes Ian Warmerdam, who manages the North American part of the Bankers portfolio.

‘We do not try to predict political events nor do we attempt to second guess the market’s reaction when the unexpected unfolds.

‘While we don’t wish to be naïve about the implications, we believe there are much more predictable trends to be studied in the quieter domain of the long term investor.’

Crooke’s view is that central bank interest rate policy is ultimately more influential on stock markets than politics. ‘Some people have been depressed that Trump has yet to achieve his promised tax cuts in the US. Yet in three years’ time, we could look back and realise that all along the most important action is what the Federal Reserve did and does,’ he says.

Share price gains and dividends

Bankers has a broad strategy whereby it can invest in companies around the world with the goal of delivering capital gains and a steady stream of income for shareholders.

It has investments in various markets including the UK, North America, Europe, Pacific region (including China), Japan and a small bit in emerging markets.

Crooke has recently been selling down positions in the US and reinvesting the cash in Europe where valuations are cheaper. ‘European market earnings are 24% below their peak before the global financial crisis, whereas US earnings are about 30% above their peak,’ he comments.

‘The US and Europe were neck and neck through the period  1997 to 2007, so something changed in the 2007 to 2011 period to dent European growth.

‘I would argue it was the state of the European banking sector. The US bailed out and recapitalised its banks, in Europe they are still undertaking capital recaps (i.e. Spain and Italy). I believe accelerating earnings and improving margins will ultimately drive up shares in Europe,’ he adds.

Seeking specific types of companies

The fund manager seeks to invest in companies which are able to generate free cash flow over and above the cost of running the business.

‘That status should mean a company can pay dividends; and, if they have debt, they can reduce borrowings so the equity becomes a larger proportion of their enterprise value and so their share price should go up. That free cash also gives a company the ability to make acquisitions and reinvest in their business.’

Crooke believes income is an important part of shareholders’ total return. Bankers Investment Trust has grown its dividend every year for the past 50 years and yields 2.17%.

He reckons the investment trust is ideal for someone wanting to invest pre-retirement and has time on their side where they can reinvest that growing stream of dividends to enjoy compounding benefits. (DC)

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