James Thomson scours the globe looking for companies with potential for strong growth that are currently flying under the radar. As manager of Rathbone Global Opportunities Fund for 17 years, Thomson has become skilled at spotting what he calls the ‘secret sauce’ that could turn an unloved company into a stock market darling.
So it’s surprising at first to find Amazon, PayPal and Ocado among his top holdings. These aren’t what you would call overlooked companies.
‘Ah, but when I first invested in them, they were under the radar,’ explains Thomson. ‘I invested in Amazon ten years ago, PayPal the day it was spun out of eBay. I’ve held on to them – I like to run my winners.’
Thomson manages a portfolio of 40 to 60 stocks. Although in theory he can invest anywhere around the world, in practice 63 per cent of the portfolio is made up of US stocks and 81 per cent is in large cap companies. He prefers the US because he says ‘that’s where the growth is’. While global stock markets have faced turbulence since the beginning of the year, Thomson’s fund is up 23 per cent this year so far. If you had put £100 in the fund three years ago, it would be worth £159 today. It has an annual charge of 0.78 per cent.
Thomson and co-manager Sammy Dow, who have been working at home through lockdown, say they are busier than ever. ‘We have been particularly active over the last six months,’ says Thomson. ‘We have put more cash to work than in the history of the fund.’
Even so, the pair still have ‘more buy ideas than space’ to add holdings, says Thomson. The fund has hit its upper limit of 60 holdings so they are operating a one-in-one-out policy, which enforces good discipline to ensure each one is earning its place.
One area Thomson is seeing outperformance is among companies benefiting from the ‘stay home’ message during lockdowns across the world. Microsoft, Adobe and Salesforce are all benefiting from the digital transformation millions of us have been forced into with working and shopping from home. Meanwhile, Freshpet and Match.com are two winners among ‘fun at home’ companies.
‘Match.com is the surprise winner of stay at home,’ says Thomson. ‘People have realised that instead of wasting three hours having dinner with a creep, instead they can have a video call and see them at home in their flat. Then if it’s not right, they can pull the rip cord earlier.’
He adds: ‘Today more than a third of people in relationships met their partner online compared to three per cent just ten years ago. The sniggering is over.’
Freshpet is also proving another lockdown winner. It makes fresh pet food that goes in the fridge and is currently the only company doing it, says Thomson. ‘Freshpet is benefiting from the rise in the number of pet adoptions as people look for companionship as we’re spending more time at home. It is also boosted by the trend of humanisation of animals. Pet owners think, ‘Why should the dog have dried or tinned food, when ours is fresh and refrigerated?’
While Thomson believes the economic crash caused by the pandemic will be worse than the 2008 financial crisis, he is also confident it will be briefer.
So what companies will benefit from the recovery as lives start to return to normal? Healthcare equipment firms Sartorius and Lonza are top of Thomson’s list.
Both are key partners to produce a vaccine for Covid-19. If trials prove successful, Thomson says the jab ‘could get emergency authorisation by December, be given to health care professionals and then to the public in the first or second quarter next year.’