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Mark Slater: 'The stock that returned 35 times my original investment'

Sam Brodbeck
Mark Slater's best performing investment, Cape, went from 20p a share to 600p - PA

Launching a fund just before the financial crisis might look like bad timing but it hasn't managed to dampen the performance of Mark Slater's £470m Growth fund.

With a total return on the fund of more than 400pc Mr Slater, son of the late Jim Slater, the legendary investor and Telegraph columnist, has built his own reputation as a skilful picker of "growth" stocks.

How do you pick stocks?

We can eliminate between 90pc and 95pc of the UK market very rapidly by applying the three "sieves" we use.

We screen for three key factors: forecast growth in earnings, the price of that growth (we use the "Peg" ratio, the price-to-earnings ratio divided by the growth rate, as a measure), and cash flow - the degree to which profit is converted into cash.

The vast majority of companies, in Britain or elsewhere, don't grow, don't generate cash or are very expensive.

Then we focus on quality. We're most interested in the degree to which growth will be sustained years into the future.

We tend to end up with businesses that operate in a "microclimate", a business that is not dependent on what the broader economy might do in a given year. Not many companies make the grade. We hold between 35 and 50 at any one time, and we hold them for a very long time.

Most of our major holdings we've owned for five years and in some cases much longer than that. We don't invest in units of less than 1pc of the fund, around £5m, so that cuts out a lot of the companies at the smaller end.

My fund company has been going for more than 20 years, so many of the names on our shortlist are ones we've invested in before or have been following for years.

Long-term investing to us isn't a quest to be virtuous, it's about being practical. If you're lucky enough to get into a good business at a good price you want to hold on to it. You need a very compelling reason to sell.

What's been your best investment?

In terms of our return it was a company called Cape, which services the oil industry and was recently taken over by a French construction equipment giant, Altrad.

We bought a lot of shares in March 2009 very cheaply. It was priced on the basis that it was going to fail, but we had a high level of conviction that that wasn't the case. It almost couldn't fail - the way it was structured meant that if business slowed down it would release a lot of cash.

At the lowest point we paid between 17p and 20p a share and built up a 3pc stake in the company. When we came sell, it was at between 500p and 600p a share, so we made up to 35 times our money by the time we exited entirely in 2011 and 2012.

Fund manager CV | Mark Slater

Our biggest holding at the moment, Aim-listed Hutchison China MediTech, is priced at about 24 times our initial investment price. It's a very unusual company, in many ways a product of the financial crisis.

It had a loss-making drug development business and a profitable healthcare business, which made the overall numbers not particularly attractive. But looking beyond the headline figures, it was a honey of a business.

Since we acquired the shares the healthcare business has delivered incredibly well. Theproperty assets have started to be turned into money as the land on which factories have been built has gone up in value.

The most exciting thing is that the firm had the first home-grown Chinese drug to get approval for sale globally.

And the worst?

The most painful investment was Bullers, a meat processing firm I bought in 1994, which went very badly wrong. The business and management were no good. It certainly wouldn't get into the fund today. We managed to sell but at a very low price - I can't remember how much we were down, but it was a lot.

In the early days my biggest mistakes were meeting company management too early - there's a temptation to give undue weight to what they say. The value for us is how they think long term. They might want to talk about the short term but that is actually less useful.

Stock in focus | CVS Group

It's a UK fund, but you own Walt Disney?

We do stray abroad where we spot an opportunity. We've always liked firms that produce content, particularly for children, who don't care about what's fashionable. We had shares in another studio, Entertainment One, which did very well and which we later sold.

After looking at DreamWorks and Lionsgate, we used the proceeds of the Entertainment One sale to buy Disney, a very powerful business.

The fund hugged the index until about 2009. What happened? Although the fund was launched in 2005 it was from then until late 2009 effectively run for one very large investor and invested only in large companies.

From late 2009 we removed that constraint, at a time when small and medium-sized stocks were extremely good value in the immediate aftermath of the crisis.

Do you have your own money in the fund?

I'm heavily invested in all of our funds and am the largest investor in the Growth fund.

What would you be if you weren't a fund manager?

I was a financial journalist for a couple of years and I might have continued with that - it was very similar to what I do now.