Top fund manager’s top stocks

After 17 years at Perpetual, John Sevior set up his own fund in 1998 called the Concentrated Equity Fund. By July 2011 he had increased funds under management (FUM) from early subscriptions of $600 million to $17 billion.

In 2012 he started a new smaller fund called Airlie Funds Management, with $4 billion FUM. At the beginning he was enamored with bank stocks, including Commonwealth Bank (ASX: CBA), ANZ (ASX: ANZ), NAB (ASX: NAB) and Westpac (ASX: WBC).

As quoted in the Australian Financial Review yesterday, he finds the investing environment to be quite confusing and it’s now hard to find many sectors or stocks that are cheap by historical measures. Consequently, for the main fund it has 12% invested in cash, nearing the 15% maximum he is allowed to hold. In another fund set up for wealthy individuals, it has 25% invested in cash compared to a limit of 50%. This allows him firepower for opportunities in either a down market or just a bad day for an individual stock. He mentions WorleyParsons (ASX: WOR) as a recent example where having cash on hand was useful.

The main fund has returned 4%-5% over the benchmark index since October last year, while the fund for wealthy investors has beaten the index by more than 10%. He attributes the recent excellent performance of his funds to holdings in Flight Centre (ASX: FLT), Crown Resorts (ASX: CWN) and Henderson Group (ASX: HGG). The latter he purchased at $1.77 and is currently trading at $3.82, a gain of 116% without taking dividends into account.

Resmed (ASX: RMD) and Twenty-First Century Fox (ASX: FOX) are two other current favorites. While not actually cheap, they have excellent balance sheets and the businesses are continuing to perform. Naturally, there have been some disappointments and Webjet (ASX: WEB) featured amongst those.

Foolish takeaway

Mr Sevior also shared his investing philosophy. Firstly, in assessing existing stocks and upcoming floats, there are three factors he considers: the balance sheet, management and the underlying business.

Secondly, a full stock valuation doesn’t always result in a selling decision, as long as they have excellent balance sheets and the businesses are continuing to perform.

Finally, it is always prudent to maintain an allocation to cash so as to take up opportunities when either the market falls or a quality stock has a set-back.

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Motley Fool contributor Mark Woodruff does not own shares in any of the companies mentioned in this article.

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