Thames River Capital’s Gary Potter believes hunting among investment trusts for unusual sources of income can offer good potential but that the key is choosing a good manager.
Gary Potter, co-head of multi-manager funds at Thames River Capital, and his co-head Rob Burdett have sold the Thames River Distribution fund’s position in John Laing Infrastructure, an investment trust. They plan to take advantage of some interesting opportunities in the pipeline that they believe might prove as good or better.
‘There are a number of new ideas likely to come to the market in the next few weeks,’ said Potter.
He cited listed vehicles investing in pools of loans being offloaded by banks. Though not necessarily investment grade, many of these loans will be senior secured or collateralised.
‘As long as the fund has a good manager who understands the asset class, it’s probably a better proposition, and will do as well or better than conventional fixed income,’ he said.
The £638 million Thames River Distribution fund already owns Carador Income fund, an investment trust run by GSO Blackstone and investing in collateralised loan obligations. Potter said they bought it more than a year ago and had taken part in a number of C-share issues. ‘It’s been a phenomenal performer; it’s absolutely walloped anything else in the fixed income space,’ he said.
Potter also holds a position in the Neuberger Berman Global Floating Rate Income fund, another investment trust. ‘You have to dig deeper and look wider to find these things,’ he said.
Holding onto some infrastructure
‘It’s all about yield, where we can get good, secure, dependable, repeatable yields: that takes you into different asset classes,’ explained Potter.
However, he stressed that he and his three colleagues do not just look at ‘wacky’ ideas. ‘We are fundamental vanilla ice-cream investors. Our skill set generally is picking good people, investing in great people. It’s people who make a difference,’ he said.
The Thames River Distribution fund has improved its performance recently and returned 9.8% over the past year, ahead of the LCI Mixed Asset GBP Balanced Global index, which returned 7.6%. Over five years, it has returned 17.5%, lagging behind the benchmark, which returned 37.1% over the same period.
Among funds he has liked for a long time, Potter included Findlay Park. ‘James Findlay’s investment philosophy is buying high quality, cash-rich, free cash-flow-yielding companies,’ he said. ‘They don’t get complicated, they just do what they know is right.’
‘Over a three-to-five-year investment time horizon, you trust them implicitly to do the right thing.’ he said. ‘They are not complex people, they are very thorough, fundamental investors who understand their companies inside out.’
Potter cited Majedie Asset Management’s UK Focus fund as another strong, long-term investment.
Among more conventional fund managers, he highlighted Clive Beagles at JO Hambro Capital Management: ‘His returns in UK equity income are extremely consistent and outstanding.’
Building up a track record
In Asia, Potter admires Robin Parbrook of Schroders, whom he has known for 15 years and described as a phenomenal investor.
Although not a core discipline, Thames River has occasionally invested in funds soon after or at launch. For example, it bought the RWC Enhanced Income fund, run by Nick Purves and Ian Lance, at launch.
‘We like to be involved with funds when they are building up a track record, not living off it,’ said Potter.