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Clunie focuses on insurers and luxury in Swip funds shake-up

Citywire A-rated fund manager James Clunie now has an extra £495 million to look after following the recent shake-up at Scottish Widows Investment Partnership’s (Swip) equity desk. Last month the firm announced Clunie would take over the management of its £371 million UK Select Growth and £124 million UK Opportunities funds from Peter Cockburn.

New stewardship

For a clue on how the funds might change under his new stewardship, investors can look back to 2009 when Clunie took over Swip’s Absolute Return UK Equity fund.

‘I took one look at it and said, “there’s an issue here” as it wasn’t giving an absolute return, so the first thing I did was rename it UK Flexible Strategy,’ he said.

‘I then read the prospectuses to understand what I could and couldn’t do with the fund, worked out where our competitive edge was, and re-engineered it accordingly.’

With the Swip UK Flexible Strategy, his ability in short-selling helped the fund return 44.86% over three years, the third best in his Citywire peer group of 16 long/short equity funds.

While Clunie is still adapting this procedure to his new mandates, which are long-only funds, his investment style combines both quantitative and fundamental analysis of stocks.

‘I call it “quantamental” and it’s an empirical research process based on what actually works in the markets,’ he said.

‘There are years of evidence-based studies on the importance of factors such as earnings, accrual, size, valuations and momentum. It is knowing what works in different markets then using that data quickly and effectively to tilt the portfolio and understand where the moves lie.’

Top-down analysis is less useful as a predictive tool, as according to Clunie, the markets lead the economics rather than the other way round. He noted that the UK’s recent slip back into recession came as surprise to many economists.

When combined with a fundamental analysis of companies, he feels this approach gives a good idea of what is cheap and worth buying.

‘The markets are really interesting right now. It is a year in which if you poll people on where they think the market will end up, it will be a high range of forecasts. It is also very hard to forecast in this politicised economy and I think stock markets are really the leading indicator,’ said Clunie.

Quantitative approach

This quantitative approach can lead to some surprising and contrarian positions.

‘Luxury stocks are an interesting one. The long-term Chinese wealth creation story makes them a great place to invest. But in the short term, this huge surge of wealth has been created by the property boom. I’m nervous that a property cycle has become a long-term story. So the luxury brands may look good on a momentum measure, but they have very high expensive price-to-earnings ratio,’ said Clunie.

‘I like the non-life insurance industry, an out of fashion sector traditionally seen as low growth. I hold stocks like RSA groupBeazley and Hiscox as their asset growth has been quite controlled. If they can survive 2011, one of the most destructive years in living memory, then I think it’s a sign they are a good company,’ he added.

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