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Newton's Frikkee sees miners and banks underweight aid returns

by Matthew Goodburn on Jul 18, 2012 at 12:33

Newton Higher Income  manager Tineke Frikkee saw a tough first quarter turn into a very strong second one as her long term underweights to low yielding banks and basic materials paid off in the renewed bout of risk aversion.

Miners and banks underweight performance boost

 

Frikkee has long avoided traditionally low yielding miners and banks and has been overweight high yield stable defensive sectors such as utilities, telcos, tobacco and pharma.

These sectors outperformed strongly during the second quarter to out the fund in the top decile of the sector in performance terms.

From the start of the year to 13 July the fund has returned 6.06%, just ahead of the FTSE 350 High Yield return of 5.14% and with Frikkee casting a concerned eye on the volatility, some lower quality names have been reduced and cash raised up to 5% to take advantage of any further market weakness.

'The 5% cash level gives us greater flexibility and we have reduced our exposure to lower quality names with greater earnings risk.'

To this end, engineer Premier Farnell and Legal & General have been sold as Frikkee views them as vulnerable to market swings while BHP Billiton has been added to the fund as around a quarter of its operations are exposed to oil.

'BHP is a higher quality cyclical and oil is less sensitive to China slowing as global demand for oil remains steady. We last owned it in October 2008 and it is yielding 4.2%.'

The top holding remains Royal Dutch Shell at 8.6% of the fund while BP is its fifth largest holding at 5.2%. Pharmaceuticals GlaxoSmithKline and AstraZeneca are its second and third largest holdings at 8.2% and 6.9% respectively.

'Shell is executing very well and with oil still above $100 we think the long term demand outlook still looks good. I used to be overweight industrial engineers but I am more comfortable playing cyclicals through oil.'

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