How one rookie fund manager beat the credit crunch

An underweight in banks has helped Newton Investment Management’s Chris Metcalfe deliver the best return in the UK All Companies sector during the market volatility.

Over the fifty days between 1 August and 20 September Metcalfe returned 4.7% on his £1.3 billion Newton Income (Newton Income) fund compared to an average return of 0.4% by the peer group.

Metcalfe was appointed lead manager on the fund on 23 April and proceeded to cut its holdings from 83 to 60 stocks, in a bid to lift the fund to the lofty heights reached under Robert Shelton, who managed the fund between 1986 and 2002.

Metcalfe targets firms which are out of favour. He also likes companies which are not heavily indebted and have good organic growth prospects.

One of his first moves was to reduce the fund’s position in financial stocks from 24% to 14%. He also reduced the fund’s property exposure from 1.5% to zero.

Metcalfe reinvested this money into consumer staple companies, such as Unilever and Scottish & Newcastle, and added exposure to oil firms.

This, along with firms positioned to benefit from growth in emerging markets, helped drive performance, he says.

‘When we cut our exposure to banking stocks, we took the view that the UK and US consumer was heavily indebted and these credit problems meant banks would not be able to grow at the top line.’

Metcalfe has no immediate plans to move back into banks. ‘We are not sure whether a cut in UK interest rates will lead to a rally in the sector,’ he said.