Andy Crossley, pictured, is the head of UK Small Companies at Invesco Asset Management. Here, he answers Times Online’s investment questionnaire on trends for the coming year
What has been happening on the UK equity market this year?
We have seen a market being driven higher by a surge of interest in commodities and ongoing merger and acquisition (M&A) activity, both rumoured and actual. Most major indices finished 2005 more than 20 per cent higher than they had begun the year - the major exception being AIM, which finished up just 5 per cent. This gives me encouragement for 2006 in this latter part of the market.
Looking at the UK stockmarket over next 12 months, what do you think the key influences will be?
I think sentiment in UK markets will continue to be preoccupied with commodity prices. Consumption trends in the United States should also be closely followed - the US is behind the UK in terms of the interest rate curve, and if recent rate hikes in US have the same impact as in the UK last year, then the housing market and consumer spending growth there may start to slow. Given the importance of the American consumer to global growth, this could be a significant story in 2006.
Do these conditions point you towards certain sectors which you think are more interesting than others?
I continue to avoid consumer exposure in my funds, because I think the average UK household remains over-indebted. Companies, on the other hand, are generally in very good shape financially, so my funds are focused more on businesses that sell to other businesses, in sectors such as Support Services and IT.
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How do you decide which stocks to buy for your portfolio?
Basically, I look to invest in quality companies that are growing and are trading at attractive valuation levels. I am instinctively a contrarian investor, and often find myself investing in stocks that are out of favour or misunderstood - you make your best money when you are right and the market is wrong.
What stocks have you bought recently?
I have recently bought shares in a newly listed company called Chariot, which is establishing itself as a competitor to the National Lottery. The company intends to sell most of its tickets over the internet and will allow players to select which charities benefit from ticket sales. I’ve also been buying a renewable energy company called Agcert International, which generates carbon credits by capturing methane on large South American livestock farms.
How do you decide when to sell a stock?
When I invest in a stock I will have a clear idea of what we consider to be its fundamental value - for a variety of reasons, share prices can move significantly away from true value, and this provides investment opportunities. As the share approaches its fundamental value I tend to take profits and sell completely when I feel that a share price reflects its “true value”.
What would you regard as your best share purchase?
JKX Oil & Gas has worked well for me - I bought it at around 17p in 2003, and recently took some profits at 340p. The company has obviously benefited from high energy prices, but presence in Ukraine - the gateway between oil-rich Russia and energy hungry Western Europe - has been the key to performance.
What was your most disappointing share purchase?
Thankfully, I’ve backed more winners than losers, but the thing with smaller companies is that things do go seriously wrong from time to time. IQE stands out as a disappointing investment - the company was profitable and investing for further growth when I bought it, but demand for its semiconductors collapsed in the aftermath of the technology boom. I’ve stuck by the company, and have been impressed with the management team. Sales have made a recovery, but the shares remain well below our purchase price.
What made you become a fund manager?
I’ve always been fascinated by markets and what makes them tick. I used to construct my own share indices at school, and even bought a Krugerrand in the great bull run in gold at the end of the 1970a. Midland Bank sponsored me in my banking and finance degree and this set me up well for a career in fund management.
What was the most valuable piece of advice you were given when you first started in fund management?
Stick to your original reasoning, and don’t be swayed by short-term swings in sentiment - the market isn’t always right!
What do you do to relax when you are not managing money?
I am an avid fan of Coventry City and watch them play when I can, but I’m not sure I’d call that relaxing.
Interview by Mark Atherton