With a strong track record, SVM Asset Management is making a push for retail customers.
By Andrew Capon
February 2003
Institutional Investor Magazine
In this grueling bear market, most money managers are happy to hang on to their existing customers. But Colin McLean, head of Edinburgh-based SVM Asset Management, is the rare executive making a major push for new retail investors.
It’s not mere bravado. His 13-year-old, £950 million-in-assets ($1.52 billion) firm boasts a stellar record as a stock picker, with especially impressive returns in U.K. and European equities.
Like many British fund managers, including Foreign & Colonial Management (now F&C Management) and Robert Fleming Holdings (now part of J.P. Morgan Fleming Asset Management), SVM was set up to run an investment trust: Scottish Value Trust, established in July 1991. Today the trust accounts for just £75 million of SVM’s assets, but its returns provide an important example of SVM’s stock-picking prowess. From inception the trust is up 289 percent, versus a 52 percent rise in the FTSE world index.
Among the firm’s recent retail offerings, the UK Opportunities Fund is up 16 percent since its launch in March 2000, compared with a 31 percent fall in the FTSE all-share index; it places third out of 244 competing funds in the Standard & Poor’s Micropal universe, which ranks U.K. equity funds. SVM’s Continental Europe Fund finishes fourth of 91 funds, with a 25.9 percent loss between March 2000 and year-end 2002, versus a 38 percent drop in the FTSE world Europe (ex-U.K.) index.
“We’re small, but our record speaks for itself,” says McLean, 50. “We want to communicate it to a larger audience. All investors want performance, and the big firms have let them down.”
What accounts for SVM’s impressive results? Credit the money manager’s research-driven, bottom-up investing approach; value instincts; forensic accounting skills; and risk management discipline.
“We need more managers like SVM,” says James Calder, an analyst at London-based independent financial adviser Bestinvest. “Their stock-picking approach works.”
To attract new customers McLean recently changed the firm’s name from Scottish Value Management. The goal: to minimize the connection to Scotland and to suggest that the firm does more than value investing. Aiming to get the SVM name known among independent financial advisers, the key retail intermediaries in the U.K., McLean has begun a marketing campaign, taking out ads in newspapers and magazines. He says he shelled out more than £1 million last year and will spend a similar amount in 2003.
He also plans to expand beyond the retail market. “Over the next three years, I want to build this business on three legs -- institutional, particularly separate accounts; hedge funds, which have been a very strong growth area of late; and retail,” says McLean, who formerly headed Templeton’s European business. “Currently, hedge funds are about 40 percent of our assets, investment trusts about 25 percent, institutional separate accounts 20 percent and retail only 15 percent. We don’t have the size in retail I think our track record merits.”
One recent win in the separate-account business: Last November Frank Russell Co. awarded SVM £100 million, adding the firm to its roster of seven managers running U.K. equities in its multimanager program. Says Kathy Nevin, portfolio manager at Frank Russell, “We’d been impressed by SVM’s stock-picking skills for some time, and we also appreciate their dedication to risk control.”
SVM scored its most dramatic success in recent years with its first hedge fund, Highlander, launched in April 1999 with assets of E16 million ($17 million). Even as the bull market was raging, McLean recalls, “we wanted to make our revenues less dependent on the overall level of markets. Being able to short stocks has enabled us to weather the storms of the last few years very well.”
Indeed. Since inception Highlander (current assets: E592 million) has returned 102.9 percent, versus a decline of 32.4 percent for the FTSE world Europe index. Last year the fund was up 9.6 percent even as its benchmark fell 29.4 percent. Highlander did well by avoiding cyclical industries and shorting Swedish mobile phone company L.M. Ericsson Telefonaktiebolaget and nuclear power utility British Energy.
Last August SVM launched a new hedge fund, Soltire, which will take a similar approach; its assets stand at E16 million. McLean says he would be comfortable managing up to E900 million in hedge funds, at which point he would close the portfolios to new investors. Currently, the two hedge funds are balanced evenly between short and long positions.
In all SVM funds portfolio managers keep a careful watch on accounting issues. As a matter of course, McLean and his team strip goodwill out of earnings, believing it to be meaningless. “So often when you strip out goodwill, a company that looked to be growing at 15 percent turns out to be growing at 4 percent,” he says.
These days McLean likes businesses that are Old Economy cash generators. He’s bullish on U.K. High Street department store Debenhams and regional brewer Wolverhampton & Dudley Breweries; as a play on global commodities, he likes mining-and-resources company Anglo American. McLean is also hopeful about the U.K. industrial sector, which could benefit from the weakened dollar.
Still, he thinks the bear market has a ways to go before it runs its course. “We think markets will again test the lows of early summer,” he says. In the current environment, he believes, SVM’s marketing push for retail investors will gain greater notice than it would have amid the tumult of the late 1990s. “The money we spend marketing will make a splash now,” McLean says. “Three years ago it would have been a drop in the ocean.”
