The MI Discretionary Unit Trust has been renamed the MI Sterling Select Companies fund, while the £43m fund, which was launched in 1963, has also had its longstanding entry fee scrapped, along with its bid and offer pricing, with it moving to a “simple, NAV-based single-price” structure.
The fund’s manager and founder of Sterling IM Melwin Mehta told Investment Week he hoped the new name would “convey that we are selective”, as the firm attempts to broaden its appeal from mainly retail investors, to encompass wealth manager and IFAs.
“We want to convey to them our unique process,” Mehta said. “We do not just look at valuations; we do not just want to buy the cheapest stocks in the market.
“We are really putting a lot of weight on management. We meet 250 management teams per year and invest in five to ten ideas at best – we reject 98% of the companies.
“Therefore, using the word ‘Select’ demonstrates we are really being selective in the process.” The fund currently holds 38 small-cap companies. “If you have hundreds of names, investors might as well buy an index.”
On the removal of the entry fee and dual-price, Mehta conceded both “should have been removed ages ago”, declaring: “Finally we have arrived in the 21st century.”
The manager said the firm had “removed the disadvantages of people investing in our fund”. “Now they do not incur a financial loss for investing.”
At the portfolio level, Mehta said he had been “sticking to quality”. “It is very tempting to buy cheap stocks, but what is important is to buy solid companies that are going through temporary problems because they will come back on the other side,” he said.
Two additions to the fund include clothing retailer Ted Baker, which has seen its share price fall from 1,096p a year ago to trade at just 129p today after a series of “mis-stepsby the previous management”.
But the company’s new management team, Mehta said, “has a very good track record” and have a string brand and distribution network with which to re-build.
Elsewhere, 150-year-old Costain is “one of the best engineering, procurement and project management companies in the UK”, but has fallen from 458p in 2018 to 76p today.
Lockdown has thrown challenges Mehta’s way, with the manager having to adapt to speaking with management over Zoom or Microsoft Teams. “In my 19-year career, I have refused to do calls, I only meet the management; in the last three months, only calls,” he continued.
“I am meeting companies I have never met before and that video element gives that human connection. Otherwise, you just do not know who is calling.”
Year-to-date, the fund has lost 17.7%, compared to its IA UK Smaller Companies sector peers’ 14.6% loss, FE fundinfo data show. Since Mehta’s Sterling IM took over management of the fund in October 2016, it has gained 27.6%, compared to peers’ 24.9%
Mehta said the fund had delivered returns of 83,000% for investors since it launched 57 years ago.