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The litigation finance specialist has been the star performer for the fund since its launch in December last year, with the shares up around 160% on Clayton's initial purchase price.
That has helped the fund deliver 21.2% since launch, around double the FTSE All-Share's return, placing it just outside the top 10% of funds in the Investment UK All Companies sector.
Clayton said Burford Capital managed to straddle two of the three ‘distinct baskets of stocks’ he is targeting.
‘Burford Capital manages to be both a special situation and a global champion, for although it isn’t the biggest company in the world, it is still the clear global leader in the fast-growing field of litigation finance,’ he said.
‘Burford delivered over 150% growth in recent interim results, shares are currently just under 160% above our original purchase levels and we continue to add to our holding.’
Hargreaves raised £168 million for the fund ahead of its launch in December last year, with the portfolio having since grown to £257 million. It was the online stockbroker's first direct shares fund, adding to its existing roster of multi-manager funds, and has since been complemented by the HL Select UK Income Shares fund.
Eight more stocks have delivered total returns of 30% or more, with online identity verification firm GB Group (GBG) up 48%. The fund’s largest holding Unilever (ULVR) has risen 46% on the back of a failed Warren Buffett-backed bid from Kraft.
In contrast Domino’s Pizza (DOM) has seen its shares plunge by almost 25% since Clayton’s initial purchase.
‘Profits have ticked along nicely enough, with double-digit sales growth and 10% earnings per share growth,’ he said. ‘But some store sales are struggling, the market is spooked.’
He added that the takeaway chain was feeling the impact of offers from rivals but ‘pizza is not going out of fashion any time soon and we regard the current slowdown as temporary, so have continued adding to the holding at these lower prices’.
Four other shares are down since the fund’s launch, including Auto Trader (AUTO), which has fallen 9% on the back of worries about a potential decline in used car transactions. Advertising giant WPP (WPP) is down 15% as investors worry about the challenging outlook for the media world.
Financial markets software provider Fidessa (FDSA) is trading 2% lower than Clayton’s original purchase price and his newest holding in Medica Group (MGP), which provides teleradiology services to hospitals, is down 2.6%.
Clayton said of Fidessa and Medica that ‘in each of these cases, we are positive on their prospects, and have added to our holdings’.
The fund targets three types of shares: ‘global champions’ which are large companies that hold dominate positions in their markets and have a strong record of generation cash and earnings profits, such as Reckitt Benckiser (RB) and Compass Group (CPG).
Clayton (pictured) also looks for ‘technology innovators’ where companies adopt newly developed technology early and ‘push it deep into their own industry to drive competitive advantage’, such as online takeaway service Just Eat (JE)
‘All these companies generate strong profits and cash flows that they can reinvest into widening and deepening their competitive moats,’ said Clayton.
The final tranche of shares are ‘special situation’ companies, which Clayton said were not recovery or restructuring plays but ‘businesses that can grow reliably, rather than just pick themselves up off the floor’.
This includes Sanne Group (SNN), which provides administration services to hedge funds and private equity portfolios.
‘Their clients almost always engage them for the life of the fund, so most of the group’s revenues repeat and new business wins tend to grow the business, rather than replace older work that just left via the back door,’ he said.
The market Clayton is stockpicking in may be fraught with political and economic challenges, but he said ‘it doesn’t matter’ as he is focused on long-term growth.
‘We have chosen a portfolio of companies that, we believe, are in charge of their own destiny. With products and services that their customers will continue to pay for, giving them fat profit margins, strong cashflows and the ability to reinvest back into the business and refuel their own growth,’ he said.