View the article online at http://citywire.co.uk/money/article/a639736
‘Self-help’ fever draws UK’s best investors
As the economy remains weak and over-bought defensive shares become too expensive, fund managers turn to unpopular 'self-help' companies.
A dirty word in literature it may be, but ‘self-help’ is the new fad among some of the UK’s biggest fund managers who are seeking to replace shares in popular ‘defensive’ firms with beaten-down companies whose managers are intent on fighting back.
‘Investors are currently paying a high price for a predictable returns profile,’ say Alan Dobbie and Julian Chillingworth, both Citywire A rated fund managers who between them run the Rathbone Blue Chip Income & Growth fund .
To Europe for bargains
Instead they’ve bought into companies including ENI, the Italian multinational energy company which is selling off stakes in Italian and Portuguese businesses, and Vivendi, the French telecommunications company which is also selling off assets to try and cut its debts.
‘That’s the kind of area that we’re looking at – high quality cyclicals and self-help stories while reducing some of the higher quality names where management are struggling to justify valuations,’ Chillingworth told investors today, in reference to so-called 'cyclical' shares which are closely tied to the fortunes of the economy.
It's tough out there
The weak global economy, and subsequent rush for the safety of ‘defensive companies’, is encouraging more fund managers to embrace the mantra of self-help.
‘The macroeconomic environment we have today is tough, and it’s going to stay tough for a while,’ Derek Stuart, manager of the Citywire Selection Star Pick Artemis UK Special Situations Fund , told Citywire earlier this year. ‘So the more companies we can identify where a lot of the returns come from internal change and improvements, the happier I am as I can’t rely on the external situation to bear these companies out.’
Clive Beagles, who runs the JOHCM UK Equity Income fund , has cited private equity investor 3i (III.L) as a ‘self-help’ story. It has historically been ‘very poorly run’ with ‘poor capital allocation, costs out of control, high leverage, little dividend flow’, says the A-rated fund manager.
But new 3i’s chief executive, Simon Borrows, has taken decisive early action since taking on the role in May – when he also bought £7 million worth of shares in the company. The group has also doubled its dividend.
Rathbones’ Chillingworth says: ‘We’ve been taking some profits from defensives in the last few months. The ratings are looking stretched, they’re not looking cheap. Whereas cyclicals… are looking particularly cheap.’
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In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
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