Rathbones UK Opportunities Fund Manager Alexandra Jackson likes to get ahead of the pack. She’s an early pioneer of what may be the next Gen Z craze – ‘demure maxxing’. It’s a refreshing counterbalance to the loud, brash energy of 2024’s ‘brat summer’.
If you’re a Gen Z-er (born in the late 1990s or later), chances are that you’ll have termed the summer of 2024 as ‘brat’. The brat aesthetic, sparked by singer Charli XCX’s eponymous album, has been everywhere. Being brat is all about putting yourself out there and unapologetically grabbing the centre of attention. The official brat colour is vivid lime green. When Charli XCX recently declared “Kamala IS brat”, the Democratic presidential candidate leaned right into the trend. Her X campaign banner temporarily switched from its usual sedate blue to bratty lime.
Brat certainly describes the flamboyant ‘look at me’ vibe of the Mag7 stocks (and to be fair, other global mega-caps with clickbait-y products). But is it time to look beyond the wild ride of these stocks’ brat summer? Here in the UK, we’re early pioneers of what may prove the next Gen Z craze – the ‘very demure, very mindful’ aesthetic that seems to be captivating TikTokkers of late. ‘Demure maxxing’ rejects loudness and brashness and instead promotes a quieter, more restrained energy in a very tongue-in-cheek way.
More obscure (perhaps even boring?) UK companies might not prove scintillating when it comes to dinner party conversations. When was the last time you heard fire-safety stock Halma discussed over the starters? But does everyone just want to talk about archetypal brat stock Nvidia all the time? Some ‘boring’ UK companies are delivering surprisingly spicy investment returns.
The FT recently rehashed its ‘XFT index’, which comprises the big companies in the FTSE 100 conspicuous by their absence from its pages. It’s a highly exclusive club: only stocks that have garnered two or fewer proper mentions in the pink paper over the past 12 months merit inclusion. The thinking is that the share prices of companies attracting lots of press attention (whether positive or negative) tend to swing much more wildly. Staying out of the limelight seems to work. The XFT hasn’t just been less volatile – it’s also outperformed the FTSE 100 index over the last five years (in fact, it’s doubled the return of the FTSE 100).
Of course, the super low-key media profile of the XFT-ers isn’t the only reason why these companies have outperformed. Other things they may have in common include: operating in ‘boring’ industries, generating solid organic growth – perhaps topped up with tasty acquisitions – and healthy levels of debt. But we see these companies’ ability to stay out of the headlines as a sign that their managements have got a firm grip on how to steer these businesses highly successfully. That suggests to us there might be more good stuff to uncover.
We own lots of these attention-deficit stocks in the Rathbone UK Opportunities Fund. Specialist distributor Diploma, Halma and private equity firm Intermediate Capital are just three examples of stocks that rarely make headlines, but consistently churn out solid numbers and decent returns. Yes, they aren’t great ‘story’ stocks. They often won’t attract much excitement until you take a peek at their share price performance. But these steady compounders are our thing just as long as they keep growing nicely. Our other thing is finding companies like these before they hit the FTSE 100 (we can invest in stocks with market caps as low as £100 million, if necessary). So our portfolio is chock-a-block with what we believe are tomorrow’s ‘quiet compounders’.
Bear with us, the stories behind such stocks probably won’t enthral your fellow guests at a dinner party. Take sausage maker Cranswick, the largest holding in the fund right now. Food production is a capital-intensive, low-margin and unglamorous business. But we believe Cranswick might just be one of the most savvy capital allocators in the UK. It’s managed to generate organic growth from venturing into chicken-processing. It’s also made some expedient acquisitions in olives, houmous and pet food. All that’s generated more than respectable returns – in fact, the shares have returned 90% in the last five years.
Likewise, fund administration business (we did warn you!) JTC probably won’t set most people’s pulses racing. But the combination here of very sticky business once won, global clients and high margins has led JTC to a 220% return over five years, including raising chunks of capital for accretive acquisitions. Private equity firms have gobbled up a lot of JTC’s competitors so it’s one of the few listed companies in this particular industry still around.
And then there’s ventilation system manufacturer Volution. Helped by more supportive regulation around mould control and air quality, as well as a comforting geographic mix and growing margins, Volution’s shares have risen by 250% in the last five years.
As the nights draw in and thoughts turn to closing out the year, we’re very happy to see the vibe shifting from bratty chaotic energy towards demure and mindful. Could the TikTokkers have got it right by proclaiming that after the brat summer, here comes demure autumn?
