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by Matthew Goodburn on Apr 04, 2013 at 09:14
Schroder Income manager Kevin Murphy is looking to trim a number of consumer facing stocks that have rallied hard over the past year and is mulling whether they are still worth their place in the £1.3 billion fund.
Murphy and co-manager Nick Kirrage applied their disciplined contrarian value approach to buy companies like media groups Trinity Mirror and Daily Mail, housebuilder Taylor Wimpey and packaging firm DS Smith when they were trading close to historic lows three to four years ago, but all have now rallied strongly.
Murphy told Citywire Selection: ‘We got in when they were extremely cheap and the market was discounting the worst but we have to work hard to make sure the positions still reflect the risk. We still see some upside but many of these stocks are now almost too big.’
Reducing industrials exposure
Murphy is wary of certain areas of the market that he believes have many companies trading ‘as if the world is fixed’ and for that reason has been slowly decreasing his exposure to industrials.
‘Certain areas of industrials factor in a continuation of a good economic environment but we are now underweight the sector after trimming in 2010 and 2012.’
Murphy continues to see value in banks, despite the recent negative newsflow and insists they still remain at attractive valuations.
The fund continues to hold top 10 positions in Barclays and RBS, as well as having a significant position in Lloyds. Murphy is unperturbed by news that British banks need to raise £25 billion by year end to plug an estimated capital hole of £50 billion.
‘Banks remain on attractive valuations and are still at a discount to tangible book value. There is further negative newsflow around but we already know they have to raise extra capital and they are doing so.
‘By year three they will have excess capital so the latest announcement does not change the investment case, just the timing of it.’
Elsewhere within financials, Murphy likes interdealer brokers Icap and Tullett Prebon, saying they are already well capitalised and continuing to grow their businesses in excess of GDP despite trading on relatively cheap valuations.
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