FTSE 100: 6696.79 ▼ -143.48 (-2.10%)
These funds have limited losses across a particularly volatile period for the UK stockmarket – a skill which is just as important as making gains when the outlook is fine.
This fund was launched in December 1992 and has assets of £92 million. It aims for capital growth through investment principally in UK large and medium-cap companies, which show above-average profitability, management quality and growth. Jamie Hooper is the manager.
‘The fund is run as a core UK equity vehicle with a large cap bias, deliberately seeking to minimise volatility in returns,’ says AXA Framlington. ‘With an active and unconstrained remit, Hooper employs a pragmatic and commercial, bottom-up approach. Rather than blindly following a sector approach to portfolio management, he prefers the company life cycle of returns. His investment universe is divided into growth, cyclical, decline, consistent and recovery phases. Since taking over at the end of 2006, he has delivered top-decile performance to the end of July 2008. The fund fell by 3.3%, compared with a 12.67% decline in the IMA UK All Companies median.
‘Since the third quarter of 2007 the fund has adopted a cautious approach to UK equities. The marked decline in the oil price has lessened inflation and interest rate concerns. This prompted a sharp rotation in the equity market from ‘quality’ and ‘momentum’ (energy and materials) into ‘value’ (financials and domestic cyclical stocks).’
Lisanne Mealing, managing director, MDM Associates
For at least the last year, the fund has held about 70% of its assets in the FTSE 100, which is very much in keeping with Hooper’s style. He hangs his hat on the fund risk/return being related to stock selection. In the short term you can see this coming through in the one-year performance. Comparing the figures of -7.36% for the fund to -11.58% in the FTSE 100 between July 2007 and June 2008, there is perhaps evidence that he is delivering on this.
Since July 2007 he has maintained his cautious approach to investing with a bias towards growth stocks, consistent performance and companies he believes are experiencing recovery. He has also had less exposure to cyclicals. With his bias towards large-cap companies and those with strong balance sheets and income streams, any investor who is either already invested or can take at least a two to three-year view would be well placed in this fund. This is a hold.
Matthew Clark, chartered financial planner, Cathedral Financial Management
Hooper’s modest track record at F&C meant he had everything to prove when he took on this fund in November 2006. He wasted no time in stamping his authority on the fund, turning over 122% of the portfolio between April 2007 and April 2008.
He seeks to run a core UK equity fund, which is index aware rather than index driven, and to deliver consistent incremental returns. This awareness of the index has resulted in a below average volatility and tracking error, compared with the sector, despite the concentration in just 50 stocks.
The fund showed strongly in 2007, outperforming significantly both the sector and the FTSE All Share. While this recent performance has been encouraging, Hooper has yet to demonstrate that his approach can deliver competitive returns on a consistent basis, which is essential for a core UK equity fund. There are many more compelling funds in this sector, so I consider this a fold.
Steve Wilson, financial consultant, Alan Steel Asset Management
This fund has held up well in the past year, falling only 7.5% compared to the sector average of -10%. I suspect the weighting towards oil and gas has helped with this.
With over 70% exposure to large caps, the outperformance may well continue as, according to research by my company, there is a trend for large caps to do well towards the end of a decade.
Many of the holdings derive their earnings from overseas and those such as Unilever will have benefited from the global consumer boom in emerging markets. One of the biggest positive contributors to performance is BG Group, which is a large holding in the fund. The cost of energy has spiralled in the past year and its shares have risen around 50% in that time.
Hooper has also started to see value in financials – life insurers rather than banks, with the exception of the recent addition of Lloyds TSB.
Although he has only managed the fund since November 2006, his performance has been good so this is a hold.
This fund was launched in May 1986 and has assets of £281 million. It aims to consistently beat the UK All Companies sector average for periods of up to one year. Karen Robertson is the manager.
‘The main reason for our consistent outperformance is the strength of our team and our investment approach,’ says Robertson. ‘We look for where we think the market is wrong in some way, either in expectations about earnings or dividends. I do not take top-down macro sector views.
‘I have reduced the weighting in mining, which had performed very well over the past couple of years. I am overweight in engineers and electricity.
‘One new holding is AstraZeneca, whose valuations are looking much cheaper. It has a high dividend yield and is a big dollar earner. Its earnings should be quite resilient, which is something that people pay a premium for in this kind of market.
‘I have been very underweight in consumer cyclicals such as property and house builders. But my biggest underweight is still banks.’
Lisanne Mealing, managing director, MDM Associates
This fund also prides itself on careful stock selection. Robertson, who celebrated 21 years of the fund’s existence in 2007, has produced consistent and strong returns since taking over in May 2004.
The team seeks value in companies that are not fully recognised in their pricing, and as such, holdings cover a wide range of sectors.
Profits were taken from some of its mining stocks in May, although there was a significant holding of 21.8% in oil and gas as at 30 June 2008. Short term, this may have a negative impact on the fund, where it would appear to have been a good call to go short in most commodities.
In volatile times, the fund is displaying a tracking error of 2.48% against the FTSE All Share and annualised volatility of 2.92%, while still delivering above sector average performance. This is a medium- to long-term investment and I do not think there is any cause for alarm, therefore it is a hold.
Matthew Clark, chartered financial planner, Cathedral Financial Management
The fund, which holds approximately 75% in large caps, has benefited from overweight positions in natural resources and basic materials, and being underweight in economically sensitive stocks.
Under Robertson’s tenure, the fund has outperformed both its sector and FTSE All Share on both a cumulative and discrete calendar year basis with reasonable levels of volatility.
Over the last year, as equity markets have fallen, she has managed to limit losses to -3.5%, compared with steeper declines in the FTSE All Share of -10.5% and a drop in the sector average of -11.5%.
While the fund’s risk controls mean it is unlikely to deliver top-decile performance over very short time periods, the consistency of the performance has resulted in first- quartile performance over one, three and five years. It represents a compelling proposition as a core UK equity fund and is a hold.
Steve Wilson, financial consultant, Alan Steel Asset Management
Although Robertson is probably better known for running the excellent UK Equity High Income fund, her performance with this fund in the past year has been good. Interestingly, the top 10 holdings are very similar to those of the income fund, which probably reflects the in-house stock selection process.
One concern is the 21% exposure to oil and gas, given that the oil price has backed off considerably in the past month or so. However, even with oil at $150 per barrel, many oil stocks did not outperform.
There is a pretty big bet with BP representing 9% of the portfolio but it really depends on when this stance was taken. BP shares have been volatile over the year but static in terms of price on a year-to-year basis.
Xstrata would have been another strong contributor to the portfolio. Hopefully some profits were taken in May before the share price fell by nearly 30%.
Robertson has seen value in financials, particularly RBS, which should prove fruitful over the long term. This is a hold.
Hooper’s good start has earned him approval from two advisers. HOLD
Robertson and her team won the Citywire award for the best UK large cap team two years in a row – and plaudits from this week’s panel. HOLD
Twist
Mark Lyttleton’s BlackRock UK Dynamic fund – though perhaps more volatile – is producing above average returns in the UK growth sector.
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