Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/wealth-manager/article/a707180
AA team: the stocks which took this fund from bottom to top decile in 12m
by Robert St George on Oct 04, 2013 at 07:23
On a five-year view, the fund languishes in its sector’s bottom decile, with a total return of 32% compared with 103% from the Numis Smaller Companies index. But over the past 12 months it has delivered 47%, far ahead of the index’s 36%. This has propelled the fund to the top decile of its sector, while it also boasts the absolute best Sharpe ratio – at 1.68 – among its peer group.
Spencer and Bullas have achieved this by overhauling a portfolio they inherited from Stuart Sharp last summer. This was laden with resource stocks, which accounted for a quarter of its holdings. Typical stocks included gold miners such as Bullabulling and Avocet.
By the start of September 2012, the managers had exited all these commodity positions. The total number of companies in the fund was trimmed from 59 to around 40, with this streamlined portfolio divided into three themes.
The first, Bullas told Wealth Manager, is high-quality growth, representing 40% of the portfolio. For Bullas, such companies are those with strong organic growth opportunities, growing end markets, strong business models, and tried and tested management. Investments in this space include printing specialist Xaar, asset manager Polar Capital, and patent translator RWS. Shares in that trio have gained 222%, 120% and 38% respectively over the past year.
Bullas’s second category is cyclical and recovery plays, comprising another 40% of the fund. These are high-quality companies that have been well managed during the downturn and are well placed to benefit from either self-help programmes or a recovery in their end markets. Lavendon, for example, has taken the former route of self improvement by installing a new management team, cutting costs and focusing on higher-growth markets like the Middle East rather than Europe for the cherry pickers it lets. Topps Tiles, meanwhile, is geared into the cyclical recovery of the housing market.
The final portion of the portfolio is devoted to undervalued and overlooked firms, those Bullas argued are ‘flying beneath the radar’ because the market has underestimated their profit potential. Bullas cited Avon Rubber as an example, the ‘market leader’ in the manufacture of products like air filters.
News sponsored by:
Today's top headlines
More about this:
Look up the funds
Look up the shares
- Bullabulling Gold Ltd (BGLB.L)
- Avocet Mining PLC (AVM.L)
- Xaar PLC (XAR.L)
- Polar Capital Holdings PLC (POLR.L)
- RWS Holdings PLC (RWS.L)
- Lavendon Group PLC (LVD.L)
- Topps Tiles PLC (TPT.L)
- Avon Rubber PLC (AVON.L)