Richard Farmiloe, lead fund manager of the Sorbus Vector Fund at Sorbus Partners, a private investment office, looks at the macroeconomic outlook and where investment opportunities lie in 2023.

As investors face volatile markets, high inflation rates and geopolitical tensions, Richard Farmiloe at UK-based family office Sorbus Partners highlighted the benefits of investing in consumer staples such as Unilever and Diageo.

Speaking exclusively to WealthBriefing, Farmiloe said a recession is likely this year. He doubts whether inflation will get back to 2 per cent by the end of the year, sitting instead at the 3 to 4 per cent mark. He also believes that the worst is yet to come.

In view of this, he is very cautious about equity markets and favours investing in consumer staples as they are companies that sell everyday items that people will continue to spend money on, even if there is an economic downturn. His investment philosophy is to look for growth companies, with high gross margins and strong balance sheets.

Although the Sorbus Vector Fund has underperformed the benchmark over the past year, the fund has significantly outperformed the benchmark over the past three and five years, he said. Nearly 50 per cent of the fund is invested in consumer staples, followed by consumer discretionary.  

Companies which the fund invests in include Diageo, Unilever, Dunelm, and A G Barr. "Unilever is our top pick to navigate the current inflationary environment and also to provide investors with a long-term growth opportunity,” Farmiloe said. He bought it last August/September, when prices were down. “It is a growth stock and it should be valued at much higher than that,” he added.

Diageo focuses on alcoholic drinks, with brands including Johnnie Walker, Guinness, Tanqueray and Baileys. Dunelm is a home retailer, specialising in bedding, curtains and furniture, and A G Barr manufactures and sells a range of branded soft drinks and beverages, the most famous being Irn Bru. Others include Tizer, Strathmore Water, and Rubicon Boost energy drinks. “The business has been able to successfully pass on inflationary costs to consumers, one of the key attractions of everyday branded products, and profits this year will be ahead of last year with further progress expected in 2024,” he said.

The fund also has a high cash weighting as they are always actively looking for new investments.

The Sorbus Vector Fund is a UK fund, currently with total net assets of £54 million and it can invest up to 20 per cent in overseas stocks, with an historical bias towards small and mid-cap companies. It’s objective is sustained capital and income growth; generally it has no more than 25 to 30 holdings and a buy/hold strategy with relatively low turnover.

As a family office, it invests in emerging market. Farmiloe said he is quite optimistic about emerging markets in 2023. The firm is overweight in the Far East, and has exposure to Japan and China, in particular, through ETFs. It is also underweight in the US as he thinks it’s overvalued. They also have little exposure to Europe.