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Why Adrian Frost ended his 10-year mining phobia
by Dylan Lobo on Feb 19, 2014 at 10:26
The valuation opportunity in miners prompted Artemis star Adrian Frost to buy into the sector for the first time in a decade.
After a tough few years, sentiment towards the sector has changed in recent months, highlighted by a Citigroup note in January in which it lifted its stance from neutral to bullish.
‘After an absence of 10 years we now hold mining shares,’ Frost said at an investment conference.
‘Expectations for miners are pretty low and most analysts are forecasting a 20% decline in earnings. Against this backdrop cashflow and yield looks attractive and there are a lot of new chief executives in place.’
‘I expect dividend growth to be moderate and steady,’ Frost said.
‘There are various companies which are generating strong cash flows. While the fundamentals are good, valuations are quite high, so we’re taking a reasonably cautious approach.’
The Federal Reserve’s decision to taper quantitative easing has caused jitters in markets, but Frost urged investors to recognise the development as a positive.
‘Let’s not be scared about returning to the normal,’ he said.
‘Yes, there will be some dislocation but if we’re still in the same place in three years’ time, with the same interest rates and levels of stimulus, that would be far more worrying for the long term investor. Yes, it’s going to be a rather rough journey as we get back to normal, but looking back - we’ll think great.‘
Frost's Income fund has been among the beneficiaries of the outflows from Neil Woodford’s equity income franchise after the Invesco Perpetual manager tendered his resignation last October.
This was demonstrated in the recent Pridham Report, which showed Artemis had surged up the fund sales table in the fourth quarter of 2013. The fund's popularity was also highlighted in data from Cofunds where it was the platform's sixth best seller in January.
With fund capacity becoming a significant industry issue, Artemis indicated it would not be restricting investments into the Income fund.
A spokesperson for the company said: ‘Although we recognise capacity as an issue, we have no current plans to “hard close” the Artemis Income fund.
‘As for a “soft close”, we regard that as an ineffective instrument. The fund’s long-term performance and its popularity will continue to allow us some control over capacity via pricing.’
‘Meanwhile, as part of continuing to meet our existing investors’ expectations, we will go on monitoring capacity regularly.’
Frost and Gosden have co-managed the Citywire Selection Artemis Income since January 2002, which has returned 160.3% in the 10 years to the end of January versus a 105.6% rise in the FTSE 350 Higher Yield TR. Over three years the fund is up 39.5% versus a 32.2% rise in the benchmark.
The pair also run the £800 million Artemis High Income fund.
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