Under the Spotlight - Q&A with Fund Manager James Dowey - Liontrust Asset Management

The financial marketplace continues to experience such unprecedented upheaval. Eye’s have moved from the impact of the Covid-19 pandemic to the turbulence a Russian invasion of Ukraine has had on economies and financial markets alike. Our Investment Committee are working continuously to adapt our portfolios to accommodate and protect against the global fluctuations/challenges presented in the marketplace. We remain committed to helping our clients prosper during difficult periods.

Like our own Investment Committee, the Portfolio Managers of the funds we invest into are having to address, adapt and evolve throughout this period too.

We recently caught up with James Dowey of Liontrust Asset Management in a Fund Manager Q&A – a series we’re running, enabling us to provide our readers with insights into the strategies some of the managers within our portfolios deploy. But we also like to go a little bit further and allow our readers to get to know the fund managers personality a little too.

James very kindly answered a host of questions for us, including his thoughts on the rise of inflation in the UK and consequently, the rise in interest rates. James also provides his personal thoughts on the outlook for the UK economy over the next 2-5 years.

We hope you enjoy the read!

Who is James Dowey?

James is a fund manager at Liontrust and co-manages the Liontrust Global Dividend and Liontrust Global Innovation funds with Storm Uru. They invest in innovative companies for both capital growth and income.

James has 17 years of experience in the industry and has also researched and taught the history of innovation at the London School of Economics. He has an MA in economics from Edinburgh University, an MPhil in economics from King’s College, Cambridge University and a PhD from the London School of Economics.

So let’s take a look at James’ answers to our questions…

How did you become a fund manager?

I grew up working in a family business in a very different industry, which was stonemasonry. But running a fund is very similar to a small family business in any industry in all the most important respects. You’re a tight-knit team with a single focus and success or failure is down to no one else, and that’s a great thing. I’m fortunate to work at Liontrust with my superb co-manager, Storm Uru, and we have the luxury of focusing on nothing but succeeding for our investors.

Tell us a bit about yourself, what hobbies do you have?

I love music of all kinds but the Beatles, Dylan, Neil Young and the greats of that era in particular and I play guitar, but I won’t comment on the quality of playing! I like sport and I’m a lifelong Wigan Warriors rugby league fan.

What is the aim of your fund?

Five years ago, Storm and I were given a great opportunity to run money with a completely clean slate, which is rare in the industry. As we all know, a lot of equity income funds have lacked capital growth in recent years, so with the Liontrust Global Dividend Fund we’ve brought a totally new approach to income investing in which we invest in global leading companies that are also continual innovators. These companies pay you a good dividend today but will also protect and grow your dividend and your capital over time.

So we don’t invest in commonly held income stocks like BT, which offered an 8% yield in 2019 but cut it to zero in 2020 under the cover of Covid, but in reality because, like many classic income stocks, it is on the wrong side of innovation. Instead, we invest in companies like Starbucks. It’s not your typical income stock, but it pays a 2.5% yield and has grown it’s divided at 15% a year for the past 5 years through continual innovation in its new products and its consumer app.

We will reach our five-year track record on the fund in August this year and we are pleased to say it’s the top performing fund in the global equity income sector over that period. This is because we are doing something very different and we hope very helpful for our clients.

What are your thoughts on the rise in inflation and consequently, the rise in interest rates?

My main concern is that we know from history that inflation becomes very hard to control once it gets into people’s heads and starts being driven by expectations rather than just supply and demand. There is a danger this is happening now for the first time since the 1970s and 80s, and the problem is that we know nothing about how powerful inflation expectations could become in a world of social media and instant information.

Interest rate hikes do their job mainly through the housing market, so that is where we may see the most pain, along with associated industries. As such, I’m not sure the market has it right singling-out growth stocks as it has in the past few months.

It makes good sense that growth multiples have been brought back down to earth, but resilient earnings growth could become a scarce and valuable commodity again as soon as the economy gets tougher and a rising tide is no longer lifting all boats. So we’re seeing a lot of opportunities to put capital to work right now in top quality companies whose stocks, in our view, are on sale right now.

How does either impact your fund?

We’ve been fortunate that the fund has held up well over the past few months and performed roughly in line with the MSCI World benchmark even though growth stocks have struggled.

There are two reasons for this. First, investing in continual innovators means we own companies that are highly profitable and generally very resilient and adaptable, and this helps them to deal with higher inflation and rates. In Q4 2021, annualised inflation over the three months in the US was already 9% and in the U.K it was 8.5%, yet 90% of our companies met or beat their earnings expectations.

Second, we invest with valuation discipline and maintain a great substitutes bench so whenever a company in the fund gets too expensive, we can take it out to cool down, which we’ve done frequently during 2020 and 2021. This means that our fund has a forward price-earnings ratio pretty much in line with the market even though we own much better than average companies.

Has the conflict in Ukraine had any impact on the funds performance?

The main impact on most companies and consumers of the awful war in Ukraine has clearly been to make the inflation situation worse. This is testing the resilience of our companies too and we will learn how well they are dealing with it in the upcoming earnings season. We have purchased McDonalds and the Dutch bank ING since the conflict began. Both companies had previously been too expensive for us, but the market’s overreaction to their Russian exposure gave us an opportunity to buy them.

What is your outlook for the UK economy over the next 2-5 years?

I’m personally optimistic that the UK can do a lot better economically over the next five years than the last five. I think the current growth of cities like Birmingham and Manchester is underrated and there is a big opportunity to rebuild the British industrial base in innovative industries such as artificial intelligence and speciality pharmaceuticals. We have a very capable economy when we get our act together, as we have time and again in history.

We’d like to thank James for his time and excellent insights provided, especially his optimism for the UK economy.

At Fiducia we are continuously looking to deliver outstanding value and expertise to our clients, if you have any questions regarding your investment portfolio please do not hesitate to speak to a member of our team. We are a multi award-winning Chartered Financial Adviser based in Colchester, Essex. Our advisers will ensure you have the right investments to help you meet your financial goals, in a tax efficient way that works for you.

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