Ben Whitmore on Launching Brickwood Asset Management and Value Investing in the UK

Launching Brickwood Asset Management

• 🚀 Ben Whitmore and his team left Jupiter Asset Management to establish Brickwood Asset Management, a value boutique focused on designing their desired systems, technology, and client service.
• 💡 The move was motivated by an opportunity for mean reversion in value investing, which has been undervalued globally over the past decade.
• 🔑 The team felt there was a gap in the market for newly launched value boutiques, and they trusted each other to pursue this venture.

Defining Value Investing

• 🎯 Value investing, for Whitmore's team, starts with low valuations but equally considers the quality of the company, akin to a trade-off in a supermarket.
• 📊 A key metric is the cyclically adjusted price-to-earnings (CAPE) ratio, using a 10-year average of earnings to identify true low valuations and avoid cyclical companies at their peaks or troughs.
• 📈 This evidence-based approach, supported by research like Professor Shiller's work, has historically been a powerful indicator of subsequent returns.

The UK Value Fund

• 🇬🇧 The UK Value Fund focuses on large and medium-sized companies, with a strategy honed over a combined 50 years by Whitmore and co-manager Kevin Murphy.
• 📉 Despite ongoing outflows from the UK market, Whitmore is optimistic due to the extremely low starting valuations, which historically correlate with better medium to long-term returns.
• 🎯 The fund aims to outperform the index on a rolling 5-year basis after fees, a goal considered ambitious by some but cautious by the managers.
• 📈 The portfolio holds 46 investments, balancing diversification with the availability of many low-valuation stocks.
• 💰 The fund's average forward PE ratio is 8.8x with a dividend yield of 4.7%, indicating significant undervaluation.
• 🛠️ Examples of holdings include Travis Perkins, trading below tangible book value due to operational issues but with strong market positions, and Burberry, facing challenges in luxury spending and strategy but with potential for recovery.

Global Value Fund and Investment Approach

• 🌍 The Global Value Fund, co-managed by Dermot Murphy, accesses opportunities worldwide, maintaining distinct portfolios from the UK fund.
• 🔍 Investment screening utilizes the cyclically adjusted PE ratio and the Greenblatt screen to narrow down the universe of investable securities.
• 💻 Technology is employed for modeling balance sheets, cash flows, and profit/loss accounts, allowing more time for analyzing valuation rationales.
• 🇯🇵 In Japan, the fund invests in good businesses with strong franchises trading below their cash and investments, such as food distributors and pharmaceutical distributors, despite the market's historical volatility.
• 🦷 The portfolio also includes investments in the dentistry sector, specifically companies supplying equipment and implants, which are currently undervalued due to market concerns about cyclicality and interest rates.
• 🛡️ As a long-only equity fund, Brickwood seeks portfolio insurance through holdings like gold miners and volatility traders (e.g., Flow Traders) to protect against market downturns.