Mark Dampier: The overlooked BlackRock fund with an overseas view
Friday 01 February 2013
The pound, as you may have noticed, has recently weakened substantially against the dollar and the euro. Not ideal for those wishing to enjoy some winter sun or snow. Currency has always been notoriously hard to forecast, but given the amount of quantitative easing in the UK, plus the low interest-rate environment and the poor economic backdrop, it is not surprising to see sterling take a tumble.
Rather than bemoaning your holiday cash, one way to try to take advantage is to look at funds investing in global leading businesses. The earnings of international firms are denominated in a range of currencies – so when sterling falls, overseas profits increase. Although he invests in the UK market, Richard Plackett, who runs BlackRock UK Special Situations Fund, feels many of the stocks in his portfolio have vast overseas earnings potential, and their earnings streams will look even stronger against a backdrop of weak sterling.
Mr Plackett has been managing the fund since 2004 and adopts a "multi-cap" approach to investing. This means backing companies of all sizes, from FTSE 100 behemoths to smaller firms that dominate niche areas. What I like about this approach is the flexibility. If investments are successful, they can grow with the fund, and he can potentially run smaller companies winners all the way to the FTSE 100. Interestingly, of the 65 stocks in the portfolio today, 23 have been held since his first year – so he can hardly be accused of being a short-term trader!
Investing throughout the market spectrum also provides diversification across a number of sectors. For instance, larger companies often fall into the consumer goods, financials and healthcare sectors. Although, the fund invests in these areas, its flexibility to invest in smaller companies allows significant exposure to more economically sensitive sectors such as industrials and technology.
Mr Plackett moves aggressively between larger and smaller companies, depending on his outlook. If he is cautious, the weighting in larger companies will increase as they tend to be biased to sectors with more defensive characteristics. Small and medium-sized companies account for around half of the portfolio, given his reasonably optimistic stance.
Performance during Mr Plackett's tenure has been impressive, with the fund returning 153.4 per cent against the sector average of 77.1 per cent. Much of this is attributable to good stock selection in smaller companies. These holdings have often been subject to takeovers, frequently at significant premiums to market price. Indeed, the portfolio has typically had one or two takeovers a year since 2004.
High-quality stocks with low levels of debt are also a feature of the fund. Mr Plackett seeks businesses with solid balance sheets that have accumulated large cash reserves. He is happy to see companies build their cash levels, providing they intend to reinvest the cash into new projects or return it to shareholders via dividends. There are currently overweights in technology, industrials and construction with a zero weighting in tobacco and utilities.
Mr Plackett is optimistic about 2013, believing the Government will continue to print money, which means many assets are likely to go up further in price. The portfolio is likely to remain biased towards high-quality smaller-company stocks where Mr Plackett and co-manager Richard Arnold have plenty of experience. Interestingly, they believe equities remain reasonable value in general terms and very good value in a relative sense against other asset classes such as bonds. They believe the "opportunity cost" of not holding equities is high – something investors staying in cash over the last year have already found to their cost.
In summary, this fund is well-placed to benefit from global growth, though it means performance could be volatile if international markets suffer. Mr Plackett is often overlooked, with Tom Dobell at M&G Recovery and Nigel Thomas at Axa Framlington UK Opportunities often attracting more money, but his is definitely a fund to consider given the experience and dedication of the team.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
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