By Pascal Dowling UK and European markets should perform well in 2001, according to lead fund manag...
By Pascal Dowling
UK and European markets should perform well in 2001, according to lead fund manager Charles Rawson, head of the Exeter Managed Growth fund.
Rawson's fund is ranked first out of 38 funds in the Active Managed unit trust sector for the three years to 23 January 2001.
He believes that, in the event of a soft landing in the US, the slowdown in Europe should be less pronounced than that across the Atlantic and he expects the UK to be protected by a weakening pound.
Despite the fund's relatively consistent strong performance, ranking second out of 58 funds in the sector for the year to 23 January, Rawson does not take a great deal of risk over his peers.
The fund has a beta of 1.23 for the three years to 26 January 2001, slightly above the sector average of 1.01.
Rawson said: "I manage the fund with an aim to achieve top quartile performance in the short term, this means I'm not under too much pressure to take risk."
For the three months to 23 January, the fund's ranking falls to 11 out of 65. Rawson said: "As I'm aiming for top quartile, not top decile in the short term, a fall of this scale is not something that causes me great concern.
"In the long term, I believe a fund that is top quartile for every period is more likely to be top decile than a fund which is constantly trying to hit the roof."
The managed growth fund is invested in the shares of investment trusts and has holdings in 23 different investment houses which Rawson believes has helped to reduce volatility in the fund.
Investing in the shares of investment trusts effectively spreads risk across a very wide diversity of underlying stocks.
Rawson said: "Developments within the industry, such as the ability to buy back shares, have increasingly led to fund managers having control of their discount. From my point of view this increased consistency on their part has shown up in more stability for the portfolio."
Tom Joy, senior analyst at Schroder's investment strategy unit and fund manager of the frAA-rated Schroder Strategic fund, agrees that healthy prospects for Europe are the consensus view among most fund managers.
However, Joy is adjusting his portfolio to increase its exposure to higher beta stocks, as he believes Europe has already seen some good performance.
He joined the fund's management team at the start of the fourth quarter last year and looked at increasing the portfolio's exposure to value stocks in what were volatile market conditions.
This year, Joy is planning to build his exposure to emerging markets in Pacific, eastern Europe and Hong Kong.
Joy believes this will improve the performance of the fund, ranked 27 out of 38 funds in the active managed sector for the three years to 23 January
He said: "Interest rate cuts worldwide and signs of a bottoming out in growth usually signal the start of a period of outperformance for equity markets. In a situation where growth is picking up, emerging markets are likely to provide the strongest outperformance."
The fund manages risk through a Schroder Risk Report, an in-house process which applies to most funds in the Schroder stable. This process analyses all the holdings in a given portfolio, and estimates the level of beta it produces and the tracking error it should involve. Using this deconstruction, fund analysts can pin-point the factors in an investment which produce risk.
Joy believes the risk in emerging markets exposure is one the fund can afford to take. Current beta levels are well below mean at 0.90%, against a sector average of 1.01% for the three years to 26 January. He also plans to reduce the defensive nature of his UK equity exposure.
He said: "Last year was turbulent, so the fund has most of its investments in UK equity angled towards more defensive sectors. This year, I am looking to reduce exposure to defensive sectors such as health and staple consumer goods and transfer my UK money into riskier areas such as technology."
At 1%, the three-month returns provided by the Schroder Strategic fund were more than the average of 0.6%, bringing the fund up to a ranking of 15 out of 65 funds in the Active Managed sector.
Graham French, fund manager of the AA-rated M&G Managed Growth fund, is also keen to have some exposure to technology over the next 12 months.
He said: "The majority of our planned exposures are more defensive, we are keen to increase our financial presence and maintain strong weightings in healthcare and basic industries, but we are also keen to be exposed to technology."
French's fund is ranked five out of 38 funds in the active managed sector for the three years to 23 January 2001. He believes the portfolio's aggressive approach has driven this performance.
French said: "We are heavily exposed to smaller firms and technology-based industry. These areas have been top performers over the last five years." However, according to French, the beating this type of stock took in the last quarter of 2000 had a heavy impact on the fund. M&G Managed Growth is ranked 48 out of 65 funds for the three months to 23 January, with offer to bid returns of 2% against the sector average of 0.6%.
He said: "In the last quarter of 2000 technology and growth stocks took a hammering which has shown up in the fund's results. To an extent, it was protected from this when I reduced its exposure to these stocks and transferred the money into value stocks shortly before the start of the last quarter."
The fund has a beta level of 1.05% against an average of 1.01%. French said: "The fund is meant to be a core holding providing some stability. We want to maintain a top quartile ran
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