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Threadneedle's Harrison: defence and growth in my 'all-weather' portfolio
Leigh Harrison, manager of the Threadneedle UK Equity Income fund, explains how he's balancing defensive stalwarts with some growth picks.
Leigh Harrison and Richard Colwell are continuing to try to blend defensive stocks with more growth-orientated stocks in what Harrison calls an 'all weather portfolio', which he tips to outperform in a gently rising market.
The biggest overweight is still industrials, where stocks such as GKN (GKN.L), Morgan Crucible (MGCR.L), Filtrona (FLTR.L) and IMI (IMI.L) have helped contribute to continued outperformance. The sector equates to 22% of the fund, compared with 9% of the index.
Adding property exposure
Harrison has maintained his weighting to medium-sized firms at around 25% of the £1.3 billion fund. He feels this can help capture better capital growth than can generally be achieved from the larger-yielding FTSE 100 stocks in the portfolio.
He has recently added his first property stock for some years, Derwent London (DLN.L), on the view that the company should benefit from London's enduring prime location potential. A small 0.5% position was taken in the portfolio, but Harrison stopped adding when the price strengthened quite sharply.
'Derwent is a central London specialist and while it doesn't have a high yield we expect London property to remain resilient. It is a global city and with Crossrail being completed, there will be lots of opportunities for property in the mid-town area,' Harrison said.
Fellow medium-sized business packaging firm DS Smith (SMDS.L) has also been built up to a 1.5% position after the firm's rights issue was backed by the group.
Recycling United Utilities into National Grid and Pennon
Elsewhere, Harrison and Colwell have been selling down United Utilities (UU.L) and recycling into sector rivals National Grid (NG.L) and Pennon Group (PNN.L). This move came after United Utilities changed its debt to a floating rate, making it less able to benefit from inflationary rises. The stake has been halved from 3% to 1.6% of the fund.
'We felt National Grid had more upside potential because of its need to invest in more infrastructure and the potential rise in the value of its asset base. We also like its new chairman Peter Gershon. Pennon is not just a water business but also a successful waste management business which is growing its profitability and which has quality management,' Harrison said.
Unilever, M&S increased
With the fund receiving around £400 million of inflows in the past few months, the duo have been topping up existing holdings such as engineering consultancy WS Atkins (ATKW.L). Harrison started buying at the end of 2011 after the shares had fallen, and after it had completed its US acquisition.
'People regard it as construction related and we think it is too lowly-valued, especially considering its US operations and we are quite positive on the US. It has a yield of 5% and remains at a very low rating,' Harrison said.
Unilever (ULVR.L) has also been increased in the past month by 1.5%, making it the fund's fifth largest holding. 'It has been a great turnaround story and is benefiting from positive newsflow,' he said.
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- GKN PLC (GKN.L)
- Morgan Crucible Co Plc (MGCR.L)
- Filtrona PLC (FLTR.L)
- IMI PLC (IMI.L)
- Derwent London PLC (DLN.L)
- DS Smith PLC (SMDS.L)
- United Utilities Group PLC (UU.L)
- National Grid PLC (NG.L)
- Pennon Group PLC (PNN.L)
- WS Atkins PLC (ATKW.L)
- Unilever PLC (ULVR.L)
- Marks and Spencer Group PLC (MKS.L)
- GlaxoSmithKline PLC (GSK.L)
- AstraZeneca PLC (AZN.L)
- BT Group PLC (BT.L)
- Vodafone Group PLC (VOD.L)
- RSA Insurance Group PLC (RSA.L)
- British American Tobacco PLC (BATS.L)
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