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Five stocks powering Franklin Templeton UK Managers' Focus' 20% outperformance
by James Phillipps on Sep 24, 2013 at 13:06
Citywire AA-rated Mark Hall highlights five key plays in his team's UK Managers' Focus fund, which have helped it generate a return 20% higher than the peer group average and benchmark over the last three years.
The Franklin UK Managers’ Focus fund has remained relatively unloved by the market with just £18 million of assets despite being top quartile over virtually every measurable timeframe.
The concept is a little different with the group’s four main specialist UK managers each running a quarter of the fund, making it a true multi-cap vehicle. Paul Spencer runs the mid cap segment with Colin Morton providing his best blue chip ideas, Mark Hall manages the multi cap and Richard Bullas the small cap. The quartet is supported by Ben Russon.
Over three years the fund is up 61.9% compared to an IMA sector average return of 42% and a 40.5% gain in the FTSE All Share. Hall and Spencer are both AA-rated with Morton A-rated.
Click through to read Hall taaking us through the team’s top five stock picks.
It is has been our biggest holding for some time. Ashtead is a plant hire group and around 90% of its business is in the US. Over the last 30 years there has been a growing trend of building contractors tending to hire plants rather than own them and we have seen this trend gathering pace in the US.
We bought the stock a few years ago after it had been hammered in the cyclical slowdown. We thought it was a multi-year opportunity to get into a company set to benefit from a structural change in the market and the recovery of US housing construction.
The share price has multiplied, but all we have seen is the structural shift to renting priced in. We have yet to see the return of residential construction, which is still 15%-20% off its 2008 peak.
We have seen recent temporary weakness in Ashtead’s share price as it is sensitive to US rate rises, but this has not derailed our long-term conviction.
Bodycote is our second biggest holding. It is an industrial engineer involved in heat treatment and it has a plant in the middle of Rolls-Royce’s Derby plant.
Rolls-Royce produces a lot of engine parts that are heat-treated to improve durability.
Car manufacturers are increasingly outsourcing this to Bodycote and we think this will be a lasting trend. It also has one or two interesting emerging technologies that could boost growth and has also made a large US acquisition, which helps the stock play into the recovery in both UK and US manufacturing.
We were looking at the likely impact of the retail distribution review (RDR) a few years ago and decided that St James’s Place (SJP) was well-placed to thrive.
We have seen a polarisation between advisory and execution-only and those firms in the middle ground have faced difficult decisions about what they do.
We think SJP had a real opportunity to bolster its growth by taking on advisers leaving the big banks and the key to its success is the growth of the partnership [its adviser network] and that is accelerating.
It does get a bit of stick over its charging structure; when you look at the details of what it is charging, there isn’t a great deal of difference with the other big wealth managers.
A new management team was put in place and we are backing [chief executive] Harriet Green, who joined around 18 months ago. We know her and when she joined from Premier Farnell we wanted to back her.
She is leading a transformation of the business and has identified a lot of the cost savings that could be made and the initial signs are good.
Xaar make print heads for specialist industrial printers and has been a fantastic performer, effectively trebling since we bought it. The key driver has been the switch to digital printing in the ceramic tile market, particularly in China.
The company has got a dominant share in the digital print head market though it took a long time to deliver. If you had held it for the last 10 years you would not have had a smooth ride, but it has cracked the market over the last two years and growth has been exponential.
The challenge is that the rate of growth will start to stabilise and Xaar will need new technologies to drive the next leg of growth. There are a number of ideas it is pursuing and if any come through, these will help drive further profit growth.