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Threadneedle's Simon Haines: my mid-cap stock picks
Simon Haines, manager of the Threadneedle UK Mid 250 fund, says he doesn't mind lagging the recent rebound, as he's focused on adding to his core holdings.
Markets
Simon Haines, manager of the Threadneedle UK Mid 250 fund, a pick of Citywire Selection, explains his strategy to take advantage of the rally in mid-caps.
Chasing the rally
Threadneedle UK Mid 250 fund manager Simon Haines is slowly buying more 'cyclical' shares, meaning those whose fortunes are closely tied to the wider stock market, to take advantage of the sharp mid-cap rally, which he says has been induced by the European Central Bank (ECB)'s latest plan to recapitalise the region's banks, known as 'LTRO'.
Since the start of the year, Haines has lagged that rebound, but he is happy to bypass what he sees as lower quality stocks while being able to add to selective core holdings that have been left behind.
'We have underperformed slightly because more risky, low-quality stocks have rallied hard, but we don't mind too much because we don't want to own stocks like Rentokil (RTO.L) and Home Retail Group (HOME.L),' Haines said. Instead, he has used the pause in momentum for a couple of his key holdings to add to his stakes.
Adding to oil and gas exposure
Top holding laundry and uniform supplier Berendsen (BRSN.L) has been added to as Haines likes the company's high margins and high recurring revenues.
Oil services group Hunting (HTG.L) has also been increased and stands at around 3.6% of the fund. Haines thinks it has been sold down unfairly on short-term fears over US gas price weakness, which he says ignores the structural growth story of the shale gas industry.
Oil and gas remains the fund's second largest overweight, with a near 10% weighting compared with the index weighting of 6.2% at the end of January.
'Hunting is now trading on just seven times [2011 earnings] and price to earnings ratios are in the low teens, but we see significant growth over multi-years from deals and overseas expansion in China and South America,' Haines said.
'My view is that the mid-cap index is very stock-driven, and it also tends to outperform during a risk-on period. The catalyst this time has been the ECB's LTRO, which has been absolutely crucial in stoking this rally.'
As a result Haines has added to his industrials positions which now stands at 36% compared with the mid-cap index's 25% average. This makes it the fund's largest sector overweight.
Packaging firm DS Smith (SMDS.L) and international media buyer Aegis (AEGS.L) have been added with the proceeds of reduced positions in engineer Rotork (ROR.L) and support services contractor Babcock (BAB.L).
Haines said: 'We have been increasing exposure to racier areas while not compromising the quality within the fund.'
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- Rentokil Initial PLC (RTO.L)
- Home Retail Group PLC (HOME.L)
- Berendsen PLC (BRSN.L)
- Hunting PLC (HTG.L)
- DS Smith PLC (SMDS.L)
- Aegis Group PLC (AEGS.L)
- Rotork PLC (ROR.L)
- Babcock International Group PLC (BAB.L)
- Domino Printing Sciences PLC (DOPR.L)
- Northgate PLC (NTG.L)
- Chemring Group PLC (CHG.L)
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