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Argonaut’s Norris: My best and worst picks of the last decade
by James Phillipps on Nov 30, 2012 at 14:10
Argonaut’s Barry Norris reached his tenth anniversary of running money this week and is on course to have returned around 240%, some 100% ahead of the average European equity manager.
The manager started out back in November 2002 running the Neptune European Opportunities fund, before co-founding Argonaut Capital Partners with Olly Russ in 2005, where he runs the group’s European Alpha fund.
‘When I started out the aim was to keep it simple: buying companies with the prospects to grow their earnings and ideally at low valuations. That’s the consistency running through the last 10 years,’ Norris (pictured) says. ‘Sometimes it work better than others, but we have outperformed in eight of the last 10 years. Unfortunately, this is one of those years where we have underperformed.
‘My style of running money tends to have high tracking error – I’ve never been afraid to ignore parts of the market, like banks – but low standard deviation and beta, so the fund has high relative risk but low absolute risk.’
Norris started out in the tail-end of the recession following the dotcom crash, but by March 2003 the bull run kicked in, although he says it was not readily apparent who the winners and losers were until 2004.
‘You could see it was very much going to be a cycle where a weak dollar, Chinese industrialisation and emerging market growth were going to be narrative,’ he says. ‘Capital was readily available and what we basically saw was that pretty much every company on the market was able to grow their earnings.
‘The spectacular bull market for corporate earnings between 2003 and 2008 meant that the valuations of the cheapest and most expensive stocks converged, because if everyone is growing you do not need to pay a premium for growth.’
He says the fund was biased towards stocks with exposure to emerging market growth, such as commodities, and this theme continued to be profitable through 2005 and 2006.
By 2007, he felt the theme was growing stale and Chinese industrialisation had been compressed into a few years rather than being the long-term theme many anticipated.
‘In 2008 at the end of the cycle you didn’t really want to be in any stocks, but in 2009 we saw a spectacular change,’ he says. ‘We identified by mid-2009 (sadly, not in March) that the leading economic indicators were turning. You could buy some fantastic cyclical companies that normally earn 10% margins on 1%–2% margins or even losing money. When we got that V-shaped recovery in the economy and earnings you would make a lot of money.’
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