Mark Dampier: The Analyst

Steer clear of those falling torpedoes

As I write, the UK stock market is heading down towards the lows it reached back in March. Whether we will see another bounce up from that level I have no idea, but the trickle of bad news is becoming more like a torrent. There is little doubt that we are going to be in for a difficult time for the next couple of years.

The main problem stems from the housing market, which is so important for the UK economy. The upshot of this is that it becomes even more important to find quality fund managers who are doing something a little different with their portfolios and following their own ideas. One such is Tim Steer of the New Star UK Alpha Fund. It is fair to say that within the New Star UK team he shines like a beacon.

Before joining the firm he was a highly rated analyst at Merrill Lynch, with a reputation for avoiding "torpedoes", or disastrous stocks, through very diligent reading of their accounts. Over the years, his excellent insights into these have paid off, and he has continued to have success since joining New Star. His fund avoided the internet gambling stocks, commercial property stocks before the major falls and he has not been in banks during the recent troubles.

A few years ago his portfolio was very focused on UK domestic companies, but he now only has 30 per cent of the fund invested in these areas. The rest has more of an international feel; you will find him invested in themes covering power generation and conservation, infrastructure and outsourcing, as well as the engineering, defence and mining sectors.

His biggest exposure is in defence, with a weighting of about 17 per cent; holdings here include Meggitt, which is more than 3.5 per cent of the portfolio, as well as BAE Systems and Rolls-Royce. All of those have something in common: strong order books. This is something that Mr Steer believes will help insulate them from the ongoing economic problems.

Many larger companies have overseas exposure, consequently 65 per cent of the fund is invested in these companies. Clearly the world's big growth area is Asia, and emerging markets generally, which altogether accounted for almost half of the total economic growth in 2007. Given that recession in the US, UK and Europe is almost a certainty now, firms with exposure to the high growth areas will come even more into favour.

An example of one such company that Mr Steer holds in the fund is Aggreko, whose business is the portable electricity generators that are greatly in demand in places like Africa that do not yet have a comprehensive power network.

In current stock markets you want to avoid the torpedoes because they will surely sink you quickly. The mining, oil and gas sectors account for approximately 15 per cent of the portfolio. Significant positions are held in Rio Tinto, BHP Billiton and Xstrata. Within oils he places particular emphasis on stocks such as Lamprell, which has unique and high quality oil service capability.

So what are some of the torpedoes? House builders have been clobbered due to the ongoing property crash, but Mr Steer sold his investment in them a long time ago. However, it doesn't stop there. The point he makes is that the house building industry has a huge supply chain from construction workers through to furniture makers, removals, DIY and retailing. So there is a huge knock-on effect throughout the economy. The cost of utility bills, mortgages and petrol are all going to make the domestic sector a much harder one in which to make profits.

However, there are still pockets of value if you know where to look. One example is Game Group, the specialist retailer of PC and video games. The company has had a very strong year because of their niche position. Discretionary spending on computer games has stayed strong, in large part due to Nintendo's innovative and popular products.

What is more, Game Group has a strong balance sheet and low debt, which is just the sort of thing Mr Steer likes in a stock.

Unlike many UK fund managers, Tim Steer has proved to be flexible and pragmatic, showing a real willingness to change the portfolio to suit market conditions and themes. While times may be tough in the UK market, opportunities are always thrown up. It is only a few fund managers, such as Mr Steer, who seem able to not only find many of the winners but, just as importantly, to avoid the losers.

Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent

cash@independent.co.uk

News
Pro-Russia rebels guard a train containing the bodies of victims of the Malaysia Airlines flight MH 17 crash in Torez, Ukraine
i100
Life and Style
Child's play: letting young people roam outdoors directly contradicts the current climate
lifeHow much independence should children have?
Arts and Entertainment
Tycoons' text: Warren Buffett and Bill Gates both cite John Brookes' 'Business Adventures' as their favourite book
booksFind out why America's richest men are reading John Brookes
Arts and Entertainment
<p><strong>2008</strong></p>
<p>Troubled actor Robert Downey Jr cements his comeback from drug problems by bagging the lead role in Iron Man. Two further films follow</p>
filmRobert Downey Jr named Hollywood's highest paid actor for second year running
PROMOTED VIDEO
Property
Sign here, please: Magna Carta Island
propertyYours for a cool £4m
News
people
News
The Commonwealth flag flies outside Westminster Abbey in central London
news
Arts and Entertainment
Struggling actors who scrape a living working in repertory theatres should get paid a 'living wage', Sir Ian McKellen has claimed
theatre
News
Skye McCole Bartusiak's mother said she didn't use drink or drugs
peopleActress was known for role in Mel Gibson film The Patriot
Arts and Entertainment
tvWebsite will allow you to watch all 522 shows on-demand
Arts and Entertainment
filmThe Rock to play DC character in superhero film
News
i100
Arts and Entertainment
Damon Albarn is starting work on a new West End musical
artsStar's 'leftfield experimental opera' is turning mainstream
Life and Style
Paul and his father
artsPaul Carter wants to play his own father in the film of his memoirs
Sport
Ben Stokes trudges off after his latest batting failure for England as Ishant Sharma celebrates one of his seven wickets
cricket
Arts and Entertainment
Members of the public are invited to submit their 'sexcapades' to Russell T Davies' new series Tofu
tv
News
Sky's Colin Brazier rummages through an MH17 victim's belongings live on air
i100
Arts and Entertainment
Keira Knightley and Benedict Cumberbatch star in the Alan Turing biopic The Imitation Game
arts + ents'The Imitation Game' stars Benedict Cumberbatch and Keira Knightley
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Training Programme Manager (Learning and Development)-London

    £28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

    Training/Learning and Development Coordinator -London

    £28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

    Business Anaylst

    £60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

    Project Manager - ETRM/CTRM

    £70000 - £90000 per annum + Job Satisfaction: Harrington Starr: Project Manage...

    Day In a Page

    Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

    The 'scroungers’ fight back

    The welfare claimants battling to alter stereotypes
    Amazing video shows Nasa 'flame extinguishment experiment' in action

    Fireballs in space

    Amazing video shows Nasa's 'flame extinguishment experiment' in action
    A Bible for billionaires

    A Bible for billionaires

    Find out why America's richest men are reading John Brookes
    Paranoid parenting is on the rise - and our children are suffering because of it

    Paranoid parenting is on the rise

    And our children are suffering because of it
    For sale: Island where the Magna Carta was sealed

    Magna Carta Island goes on sale

    Yours for a cool £4m
    Phone hacking scandal special report: The slide into crime at the 'News of the World'

    The hacker's tale: the slide into crime at the 'News of the World'

    Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
    We flinch, but there are degrees of paedophilia

    We flinch, but there are degrees of paedophilia

    Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
    The truth about conspiracy theories is that some require considering

    The truth about conspiracy theories is that some require considering

    For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn
    Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

    Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

    Meet the man who doesn't want to go down in history as the country's last Scottish Secretary
    Legoland Windsor's master model-makers reveal the tricks of their trade (including how to stop the kids wrecking your Eiffel Tower)

    Meet the people who play with Lego for a living

    They are the master builders: Lego's crack team of model-makers, who have just glued down the last of 650,000 bricks as they recreate Paris in Windsor. Susie Mesure goes behind the scenes
    The 20 best days out for the summer holidays: From Spitfires to summer ferry sailings

    20 best days out for the summer holidays

    From summer ferry sailings in Tyne and Wear and adventure days at Bear Grylls Survival Academy to Spitfires at the Imperial War Museum Duxford and bog-snorkelling at the World Alternative Games...
    Open-air theatres: If all the world is a stage, then everyone gets in on the act

    All the wood’s a stage

    Open-air productions are the cue for better box-office receipts, new audiences, more interesting artistic challenges – and a picnic
    Rand Paul is a Republican with an eye on the world

    Rupert Cornwell: A Republican with an eye on the world

    Rand Paul is laying out his presidential stall by taking on his party's disastrous record on foreign policy
    Self-preservation society: Pickles are moving from the side of your plate to become the star dish

    Self-preservation society

    Pickles are moving from the side of your plate to become the star dish
    Generation gap opens a career sinkhole

    Britons live ever longer, but still society persists in glorifying youth

    We are living longer but considered 'past it' younger, the reshuffle suggests. There may be trouble ahead, says DJ Taylor