FXstreet

An interview with Arun Daniel, JOHCM US Small Mid Cap Equity strategy

Forbes: You said that J O Hambro places particular emphasis on fund managers investing in their own funds. Why is that?

Daniel: Yes, our fund managers typically have significant holdings in the funds that they manage. The aim is that our goals are aligned with those of the investors in our funds.

Forbes: So why U.S. small and mid caps?

Daniel: Why should people invest in the U.S. small and mid-cap area is a question we often hear from investors. We believe that it’s where companies are in the sweet spot. Companies in this space have the opportunity for rapid growth and also the potential to benefit from merger and acquisition activity.
We define small and mid cap companies as those between $1 billion and $15 billion in market cap. This range offers a broad opportunity set of stocks for us to purchase, stocks in which we have high conviction. We want to identify companies with the potential for strong performance, and the small and mid-cap area has a strong performance history relative to large-caps.
Also, investors structurally underrate this market segment, making it less efficient. As such, it is easier to find good opportunities. Our strategy, simply put, is to find the next Netflix or the next MasterCard. If you look at any of these companies, they were small-cap and mid-cap companies within the last ten to 15 years. And now, they are, obviously, large-cap companies.

Forbes: that you like?

Daniel: Of course. Our team has a sector-based investment philosophy, which means that each fund manager has expertise and experience in specific sectors of the market. For example, I am focused on the consumer sector and the industrial sector and have spent the last 15 years of my investment background focused exclusively on these sectors.
The stocks I’ll mention fall into those two sectors: The first company we like is called Jarden (NYSE: JAH). It is a well-diversified, global consumer-products company that maintains a portfolio of over 120 strong brands in retail and in consumer durables.
It’s a best-in-class operator of diversified consumer brands with a compelling track record of delivering new product innovation. The stock should also be a beneficiary of strong consumer spending in the durables category. The company consistently delivers on earnings growth. Over the next three to five years — the investment horizon over which we like to focus — we believe there will be strong growth in the domestic U.S. market in the branded consumable category. I think this stock will benefit strongly from that and deliver good results.
Forbes: Are they international in their scope?
Daniel: They are in the very early stages of European market growth. Right now, their foray into the European market is not a significant contributor, but we expect this new market to lead to further growth in the next three to five years. Recently, they acquired a company called The Yankee Candle Company, which you may know. The great thing about Yankee Candle is that it is able to integrate its offering with the Jarden brands, driving synergies and top line growth in retail in the medium term.
This is a good example of how Jarden performs acquisitions. They buy companies at an attractive multiple and then they grow the top line and the bottom line over the next three to five years and increase earnings. This is the type of story we really like and we believe it represents a good opportunity for investors over the next three to five years.

Forbes: Sounds good.

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