He says the fund predominantly invests in mid and small-cap stocks, with mid-caps currently accounting for 27 per cent to 30 per cent of the portfolio.
He refers to mid-caps as the “steady growth” stocks and the small-caps as the “attack”.
“Attack is stuff that’s very cheap, like recovery stocks, [and] refinancings. Or companies that can grow very strongly – so even in a difficult economy you get businesses that can benefit from trends that are going on,” he explains.
But when he started investing the fund back in October, he was “sitting on the fence a little bit” as Brexit continued to play out, and therefore had the fund positioned in more large-cap stocks.
Where he had 12 per cent in cash back in November, that has gone down to 9 per cent now.
“There was a little while where we were just looking at the market and edging the money in,” he says, acknowledging it has been “a very macro market” because of Brexit.
Investors might assume the research capabilities at Mr Penny’s disposal at Crux are not as broad as the research he had access to at LGIM. But he insists this is not the case and points out the active investment side “was really quite small” at LGIM.
Although the Crux UK fund run by Jamie Ward is more focused on banks, retail and consumer discretionary, he suggests it “is quite complementary with what I do”.
He also draws on ideas for his UK Special Situations fund from Mr Pease and James Milne who “run quite a lot of money in the UK as well, as part of their £1.8bn European Special Situations [fund]”.
It was while he was at M&G Investments that Mr Penny came to specialise in investing in recovery stocks, where he says he “did well with those, particularly in 1998, 2003 and 2008 to 2009”.
“Arguably, it’s quite a number of those recovery stocks that drove the [L&G UK] Alpha Trust,” he suggests.
What size would his new fund have to reach before he closed it to new investors? “I would say, the maximum size is £1.5bn to £2bn,” he confirms. “But from £500m we would be significantly less able to invest in businesses under £100m.
“Most people don’t invest in businesses under £100m at all, and I think if you manage it and you manage the liquidity, that’s where there are a lot of bargains.”
Ellie Duncan is features editor at FTAdviser and Financial Adviser
