Smith & Williamson Investment Management is an independent firm managing more than $12.6 bn, making it one of the largest private client investment managers in the UK.
Tana Focke, a director of Smith & Williamson, was recently named fund manager of the year for North America at the Lipper Citywire All Star Awards 2006. The award was presented in recognition of the outstanding performance of one of the firm’s funds, Nucleus American Trust. Focke worked on the sell side in the US for 20 years before switching to fund management. She joined Smith & Williamson in 1997 to manage its North American fund, which today is worth around $105 mn.
Are there any sectors you won’t invest in?
I have a market cap limitation of $1 bn – apart from Canada. I don’t leave out any sectors, but there are certain business models that are not very attractive. For example, although chemicals have done quite well recently, before that I would have said this wasn’t an attractive sector as it’s commodity-based. But as fundamentals change, you have to keep revising your attitude.
Do you screen stocks in terms of cash flow, valuation or growth criteria?
No, it’s more on an individual basis and more by industry/sector. It doesn’t have to have a 1.5 percent yield or yield more than the market, or grow at a particular rate. You can’t compare a food company with a biotechnology company; you have to do it sector by sector.
You’ve been covering US stocks for years. What has that taught you?
You don’t want to hold things for too long. I do hold things for two or three years, but fashions and performance change and you must take profit because nothing stays the same.
Things come into and go out of fashion. People look at investment in a different way. Relative returns, absolute returns – styles of investment change. When I started, growth stocks would have been Eastman Kodak and Xerox. You thought you’d hold them for a lifetime. Things change – that’s what experience tells me.
Do you have sector restrictions?
They are self-made. However, in order to be more cautious and risk-averse, you never want to be hugely overweight. I might be 3 or 4 percent overweight in a sector. With a big sector like banks, which is 10 percent of the market, you could be 3 or 4 percent underweight. But in the case of a smaller sector, which is only 2 percent of the index, you might not hold any shares at all.
What about themes?
I do have themes. Defense is a theme. The other is growth in the Hispanic population, which I think is important. If you get the right theme, you can play it for a long time.
Are there any US management teams you particularly admire?
I admire the ones that lay it out for you, like Jack Welch used to do at GE. He explained how he intended to grow, how he intended to make his numbers and where the growth was going to come from in a very clear way. Nobody ever left one of his presentations wondering what he was doing, because it was always very clear.
What is your average length of a holding?
I could hold something for three weeks or three years – it depends on the target I set when I buy the company. You would expect a stock like Colgate to have steady growth, whereas there are others that might be much more volatile. You would hold a stock like that as a core holding, but you might have a situation where you were expecting a turnaround in a particular product or were expecting something to happen fairly quickly – and if it happens, you take your profit and run.
Which sectors do you currently favor?
I think mobile telecoms still has potential, especially in terms of handheld devices. Aerospace and defense is another favorite because unfortunately we’re not living in a peaceful world. Commercial aerospace is on a roll with the Boeing 787. Defense is hugely important as there are wars going on all over the world and the US seems to have appointed itself global peacekeeper so it can’t really afford to cut back much on defense.
Healthcare and services are strong because of the ageing population and the demand by older people to keep young. The utilities sector is also a good one, since the growing economy always requires more energy and there has been a shortage.
Are there any industries that you don’t like?
I don’t have any forestry or paper investments, and I’ve missed out on the railways.
Does meeting US companies make a difference?
Yes! I love to see top management and I love to see IR people too. I don’t decry IR people as I think they do a great job. Sometimes it’s difficult for them. If you’re right at the top of a company, you can say things that maybe an IR person would be guarded about. I’m not talking about inside information, but rather a flavor of the enthusiasm that someone has about their company’s investment story.
If you see somebody who is living and breathing their company, it does make a difference. They can tell you a lot about the company – little nuggets, things that might not seem tremendously important. I’ll meet anybody – I love to see companies and get a sense of what they are doing.
What tips could you give a company?
Don’t lie. It’s difficult when a company knows results are not going to be good. When things are going well, it’s easy to present results as you’re upbeat. It’s obviously much more difficult to present when things are rough, but you just have to come clean and say it.
Who is consistently good at communicating?
Colgate-Palmolive’s CEO, Reuben Mark, is always good. In contrast, you tend to remember the ones who come to London and are bullish, and then announce appalling results three weeks later. It happens less often now with Sarbanes-Oxley.
Yum! Brands does quite a good job; its people come to London on a regular basis. Exxon and the big companies are good. In fact, most US companies do a pretty good job.
What is really annoying is if you feel you’ve been hoodwinked or that a company has concealed something. Obviously it’s a worry if a company really doesn’t know that things are going badly wrong, and sometimes this is the case.
Who would you like to see visit London that you’ve not seen?
It would be good to see Google, but they likely come with Goldman Sachs or one of the other big brokers. If they come with a broker and you’re not on that broker’s list, you won’t get asked. I’m a small fund; brokers go where they can make the most money, and that’s not me. I’m not a particularly good account to have.
How many US companies do you see in London?
More than 100 companies a year. I also visit the US three or four times a year. My colleague Sophia Calvert goes once or twice a year too.
I generally go based around a conference. I prefer company visits. At conferences I prefer to listen to the general presentations. You sit through six or seven presentations a day and it’s always the ones you thought were going to be the least interesting that are the best.
