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View the article online at http://citywire.co.uk/wealth-manager/article/a758571

Old Mutual’s Message: It’s time to ditch equity safe havens

by Eleanor Lawrie on Jul 01, 2014 at 14:22

At £126.7 million, the fund is a relatively small player compared with many of its UK equity income peers, which have capitalised on the seemingly limitless popularity of the asset class.

But the fund has grown from being approximately £80 million at the start of the year, buoyed by its historic outperformance.

Message said he could run the strategy, which is overweight the FTSE 250, to £1-2 billion before having to consider any changes.

‘We have seen some inflows, which is good, and the market has been flat so that has not helped us. It has been about performance and that is quite nice, to be able to grow the franchise,’ he said.

Overweight financials

The fund is materially overweight financials and telecoms, with around 10% in HSBCBarclays and Lloyds combined. These are banks Message believes will increase their dividends as the sector rehabilitates itself.

‘It’s the one area where we are still seeing scope for an improvement in the operating environment. It’s tough for these guys, but that’s where the opportunity lies,’ he said.

Meanwhile, life companies Aviva and Legal & General are both among the fund’s top 10 holdings, and the manager is confident they have a bright future, despite the scrapping of compulsory annuities in the Budget earlier this year.

Message took advantage of the ensuing share price weakness and topped up his holding in Aviva, which saw its shares fall by more than 7%.

‘The life companies’ share prices have recovered, it was definitely an overreaction,’ he said. ‘The point of the Budget was to increase the incentive to save for the future and we have more savers in an ageing demographic, so for the likes of L&G and Aviva, we still see demand for retirement products.’

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