Mark Dampier: The market is ready to rally at last
Saturday 11 July 2009
This week I thought I would talk about three funds rather than the usual one. All three are centred on the UK market and two I have already featured this year – namely the Standard Life Recovery Fund and the Schroder UK Alpha Plus Fund. The remaining fund is a new launch from Old Mutual, the UK Dynamic Equity Fund.
If you read my comments last week you will know that I am fairly gloomy about the state of the UK economy. The question is how much of the bad news is already reflected in the market. Back in March, the market seemed to be priced for the very worst outcome – the subsequent rally since then has been based largely on the fact that things are getting less worse. Companies that were expected to go bust have been brought back from the brink, notably the banks.
The three managers of these funds all remain optimistic, but are definitely not bulls of the UK economy. Investors should remember the economy and market do not necessarily behave in the same way.
The Standard Life Recovery Fund was launched near the low point of the stock market in early March. David Cummings, head of UK equities at Standard Life, has had a fantastic spell, with the fund rising over 50 per cent. In the last week he added even more of his own money to the fund, believing the market can hit 5,000 by the end of the year.
He does not expect to see it below 4,000 again. The Standard Life team is relatively upbeat seeing many opportunities coming through its door every day. Bear in mind it manages over £30bn worth of equities so have considerable expertise.
In January, I highlighted the Schroder UK Alpha Fund. The fund had experienced a fairly torrid time and its weighting in banks had been detrimental to performance. However, since then it has rallied very strongly and, in a recent meeting with Richard Buxton, I found him optimistic on his portfolio.
He has been trimming his holdings in banks and other successful holdings – including Next, Home Retail and Reuters – but he has not sold any completely. He believes, like David Cummings, that we have seen the low point and are now in a trading range.
He believes the real test will come in the autumn when we will see whether company orders are really picking up. Into next year he believes that GDP will not be much more than 1 per cent – and it could even be less – but, either way, it is going to be a tough environment. It is here that his stock-picking abilities will come through. He thinks there will just be a few winners and his portfolio is concentrated at 32 stocks. He is looking for companies with good earnings visibility, which will grow through a tough economic environment.
These include Experian and BG, while he has also been buying Glaxo which he views as far too cheap.
That leads me on to the new Old Mutual UK Dynamic Equity Fund where I have found the manager, Luke Kerr, in a similar frame of mind. However this fund does have slightly more ammunition in that it can also short. It is not an absolute return fund; in fact, it will have the characteristics of a long-only fund, but with some defensive qualities when the market falls.
This is Old Mutual's best ideas portfolio, so it has a hunting ground across the market capitalisation, but their real expertise – and where they find the most opportunities – do tend to be the mid and small cap area. The fund is also likely to be limited in size at around £200m.
This is a fund to take a look at sooner rather than later as I believe the team behind it is one of the strongest in the city.
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
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