Investing in Growth

Investing in Growth

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Richard Middleton?

Richard Middleton is portfolio manager of the Investec Growth Fund. He joined the company in 2010 from Stanlib Asset Management, where he headed up the growth franchise for three years, including management of the growth unit trust for seven years. Prior to Stanlib, Richard worked at Liberty Asset Management as an industrial analyst and assistant portfolio manager, as well as at Rand Merchant Bank Asset Management as a precious metals analyst. He started his investment career at Gold Field’s Minerals Economic division as a mining analyst.

Richard holds a degree in Metallurgical Engineering and an MBA from the University of the Witwatersrand. He spends his spare time entertaining his children, listening to music and “klapping the gym hard.”

Selecting companies to invest in

“My investment philosophy is to invest in growth companies that are growing either organically, or through acquisition, and which have the potential to expand into countries outside South Africa. We primarily select companies that are growing their forecast two-year compounded earnings faster than the overall equity market.

“However, a very important aspect to selecting these companies is the quality of their management teams. You ask questions to establish whether management is a shareholder in the company, whether the team is entrepreneurial and growth orientated, and whether they have experience in expanding their companies into other countries. As such, the selection process is one of stock picking, and there are therefore always investment opportunities on which to capitalise.”

Describe your portfolio of equity investments?

I also look for opportunities in the under-researched mid and small cap sectors, though 70% of my investments are of larger cap, more liquid shares. In the Growth Fund, which I am primarily invested in, we cap the allocation to the more illiquid but high-growth small and mid-cap counters at 30% of the fund’s value.

Your successes?

Over the past year, they were largely due to investments in the large cap globally focused industrial companies such as Richemont, SABMiller, Naspers and Aspen. AECI and Barloworld, which will benefit from mining companies expanding production, added value, as did the smaller cap recovery stories like Supergroup, Metrofile, Ellies and Consolidated Infrastructure Limited. My best performing holdings in Resources and Financials were Exxaro, FirstRand, Discovery and PSG.

My top stock pick in the Industrial sector this year is Naspers. Some 70% of its value is attributable to Tencent’s share price and 10% to Mail.ru’s. Both are currently trading at discounts to their global peer groups. As both have great growth prospects in their respective markets, China and Russia, I believe that in time these discounts will close, driving Naspers’ share price higher. The roll-out of digital satellite TV across Africa will also contribute materially to Naspers’ earnings growth. Another stock to watch in the technology space is Digicore. It has developed and sells proprietary fleet management and stolen vehicle recovery technology, and is represented in more than 25 countries globally.

In Resources my biggest relative exposures are to Billiton and Exxaro.

Your returns to date?

For the 12 month period ending March 2012, my portfolio has returned 13,3% versus the All Share index return of 7,5%. Although we are in the early stages of what I believe to be a global economic recovery, my portfolio has performed relatively well in a rising equity market.

Eamonn Ryan
Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.