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Hold or fold: Newton UK Opportunities

What Citywire says:

Citywire AAA-rated Ben Russon’s Newton UK Opportunities fund is firmly top quartile over one, three and five years, but its negativity about UK banks has held it back in recent months as the market rally has taken hold.

The fund, managed by Russon since July 2005, has delivered 36.1 % over five years to the end of June, -0.9% over three years and -12.8% over one, placing it 13th, 6th and 25th in the huge UK All Companies sector respectively.

Its return of 4.6% over three months places the fund near the bottom of the sector over that time period – 320th out of 326 in the sector.

The main factor leading to this underperformance has been Russon – and Newton’s – scepticism about the state of UK banks. The fund does not hold any UK banks and so missed out on the rally in financials since March.

The performance of the fund will be driven by the extent to which Russon and Newton’s view of the state of the UK economy holds true.

‘Once you’ve had the bursting of a credit bubble, the prospect of credit growth is very low for a long time,’ said Russon. ‘This leads us to be very cautious about getting involved in any of the financial institutions.’

What the advisers say:

Simon Gibson

Director, Atkinson Bolton Consulting

Russon’s fund stands apart from others investing in UK companies due to its high conviction stance on specific sectors of the market, says Simon Gibson.

Gibson is a fan of this approach and in particular of the way that by drawing on Newton’s house view, the fund is able to take a view on sectors informed by global factors.

‘We like Newton’s approach to looking at things globally. So much of the UK stockmarket’s involvement is in businesses overseas,’ he says.

Gibson admits the fund’s high conviction stance on UK banks could backfire if financials continue to rally, but says he is ‘pretty relaxed’ about Russon’s positioning, pointing to the amount of deleveraging that still has to take place.

The fund may not have tapped into the full extent of the market rally since March, but Gibson is sceptical about the areas of the market that drove the rally, and is happy to have the fund as a holding in Atkinson Bolton’s Thoroughbred Core Alpha fund.

However, he says the fund would not form part of his firm’s ‘absolute core holdings’ because he does not fully share Newton’s stance on UK market prospects.

‘We see this being managed in a rather more cautious way,’ he says.

verdict HOLD

Andrew Merricks

Head of Investment, Skerritt Consultants

Merricks is sceptical about UK companies at the moment but within that sector he is a fan of Russon’s approach, despite the recent dip in performance.

Merricks praises Russon for taking such a strong stance on UK banks, and says the fund’s positioning was no less risky than backing UK financials.

‘I like anyone who is brave enough to take that stance. He shouldn’t follow the herd,’ he says.

‘There is a risk they will get it wrong. But there is also a risk of staying in banks,’ he adds.

‘There is definitely a risk to hugging an index because of the concentration in that index. Those funds that were thought to be lower risk, because of banks, proved to be higher risk.

‘As investors in an active-managed fund, you would rather the manager invests in companies because of their expertise in stock picking. If not, you might as well just invest in a tracker,’
says Merricks.

verdict HOLD

Twist

Legal & General UK Alpha Trust. Citywire AAA-rated Richard Penny’s fund has delivered top quartile returns over one and three months, and one and three years.

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