Laura Foll is co-manager of the Lowland and Law Debenture investment trusts at Janus Henderson, as well as Janus Henderson’s UK Equity Income & Growth open-ended fund.
Later this month, on 17 September, City AM is partnering with Law Debenture on its new financial education initiative, WIN, which aims to support those new to investing.
Ahead of the event, Laura sat down with City AM’s Rupert Hargreaves to discuss her value investing philosophy and what’s in store for UK equities.
What is your investment philosophy and how does it drive your strategy for the Law Debenture trust?
The funds aim to identify market-leading, well-managed businesses, with a strong emphasis on effective management teams. We look to acquire these companies when their valuation presents a discount, either compared to their historical performance or to relevant peers.
This often means we buy when there are widely recognised issues that we believe are being overstated.
For example, about five years ago, when we invested in M&S after Archie Norman was appointed chair, the market perceived it as a business in structural decline.
We believed this was an overestimation, recognising its well-run food business and a clothing business with a surprisingly high market share. This is the type of company we seek: one where we can buy at a low valuation, offering potential for both valuation and earnings upside, which is crucial for achieving excellent total returns.
Being a value investor also provides downside protection. If you buy something at ten times earnings, it’s less likely to drop to five times earnings. However, if you buy at 20 times earnings, a reduction to ten times earnings is more feasible.
How do you manage risk in the portfolio when you’re chasing value?
That’s a very good question. In our view, the only way to truly manage risk is through genuine diversity in your holdings. We typically hold around 150 positions, which isn’t unusual for this trust. What makes us happiest, though it might sound strange, is when our best performers are from a completely diverse set of companies.
Currently, our top performers include Babcock International, several banks, and companies that have been subject to takeovers. There’s absolutely nothing that links Babcock, Barclays, and Renold, and that’s a positive for us.
Some people might say concentration is a better way?
Yes, I think it’s essential to note that this approach aligns with our investment style. As value-driven investors, we buy at points where, as I mentioned, there are well-known and understood issues.
In the M&S example, you wouldn’t necessarily want to allocate three per cent of the fund to M&S five years ago, even though, in hindsight, it worked out very well. At the time, numerous issues needed to be addressed.
It was the same with Babcock when we invested as the new management team came in. Therefore, our investment style is well-suited to having a long list because we buy when there are issues, initially in small sizes, and then add to positions as we gain confidence. We then sell gradually at the other end. This lends itself to a long list.
However, some highly successful investors run money very well with a different style—a shorter list with higher conviction. It’s about matching the style to the investment process.
How do you handle tough markets?
Personally, when facing tough markets, I simply don’t open my account. I have a very strong view on this, and I tell my husband the same thing about his account: in a tough market, just don’t look.
And then in the trust itself, when would you pull the trigger on selling something if it hasn’t worked?
There’s no blanket rule, but broadly speaking, we would sell if we felt that something had become structurally impaired to the point where the company could no longer recover. The two key considerations are: what does the balance sheet look like, and is it a structural impairment or just a cyclical downturn?
Could you tell me about your bottom-up research process?
It’s bottom-up, yes. There’s the entire depth of expertise at Janus Henderson; across the firm, we’d meet thousands of companies a year, and we can utilise notes and comments from other people’s meetings as well.
I should add that we don’t operate completely insulated from the macro environment; we certainly pay attention to what’s going on. However, we’re not trying to second-guess GDP data or inflation figures. I think that would simply lead to value destruction at the moment, given how quickly and unpredictably things are changing.
If we look back to April and the tariff announcements, if you had tried to be really proactive in moving funds around during that period, you could have found yourself on the wrong side several times over. It might have felt like the right thing to do at each moment, but a couple of months down the line, it probably wouldn’t have been. In such events, we often take a step back.
How do you communicate that with investors?
We’re striving to be more open in our communication, and that’s really important. As you and I both know, this industry can sometimes be quite opaque and employs numerous acronyms. We’re trying to be more open and transparent. However, it is quite a challenging industry when it comes to directly reaching retail investors, so we do everything we can but recognise that it can sometimes be challenging to connect with people.
Does the industry need to do more to engage with retail investors?
In short, yes, there’s still a way to go. From speaking with friends who don’t necessarily work in finance, I know that the industry can still be challenging for outsiders to comprehend. If you’re not quite sure where to start, it can still be daunting.
There are many good products available, but I believe there’s still a slight distrust of the City that we need to overcome.
Could you tell me about one investment mistake you’ve made in the past?
This is really boring, but I’m struggling because all I’ve ever bought for myself are trusts that I manage. I’ve had the odd investment trust – I don’t own any individual company shares – that hasn’t done well, but I wouldn’t say it’s been hugely negative.
I suppose the most significant problem – not a problem, but the biggest asset allocation mistake I’ve made, and I’m definitely not alone in this – is having too much in cash.
The whole time, I’ve been thinking, “Oh, I need a big cash buffer, I might want to move house at some point,” and that has meant I’ve been sitting on more cash than I should have. That has genuinely cost me, both in a relative sense and in real terms, given recent inflation.
So, in the grand scheme of things, that is by far my biggest mistake.
What is the biggest challenge out there for UK fund managers?
The challenge is that we need to reach retail investors. The shape of the share register is changing, and this isn’t unique to us; far from it. There’s a shift happening from wealth managers to retail investors doing their own investments via platforms.
As I said, I think we are making improvements, but there’s still quite a way to go in helping that retail investor understand the advantages of this type of investment proposition.
Therefore, we need to engage more, and it’s simply a matter of how we manage to reach them. So, it’s both a challenge and an opportunity, because if we can figure out how to reach these people more effectively, we can attract a wider investment audience. And I think it will hopefully be a good product and a good experience for people.
The next WIN event will take place on Wednesday, 17th September, starting at 5:30 pm at Law Debenture’s office in the City and online.