sars virus leading to strong buying openings, according to managers of the Alliance trust
The managers of the £1.13bn Alliance Trust expect to find strong buying opportunities in Asia resulting from the Sars virus.
China now represents 1.5% of the global growth investment trust but manager Alan Young said this is likely to increase to more than 2% in coming months.
Alliance is expecting Chinese shares to rise sharply once the country's markets have all reopened, in expectation that the government will pump in the necessary funds to support an economy which is being negatively influenced by Sars.
Grant Lindsay, another manager on Alliance Trust, expects this share price boom to be short lived and it is the point at which equities come back down again that he intends to buy. 'It all comes down to price and value, but in particular we like some of the toll road providers and some of the electrical operators,' Lindsay said.
The power companies he likes are Huaneng Power and BeijingDatang. Toll road providers Alliance Trust is also likely to buy include Jiangsu and Zhejiang.
Lindsay believes there are some encouraging signs that the end to the Sars virus is in sight. Infections in the southern province of Guangdong, where the virus is believed to have started, now seem to have peaked and Singapore has had several clear days without new infections being detected.
Even so he sees it as inevitable that the virus will have an impact on economic growth going forward.
'This could be a good thing. It will take the steam out of the economy and make the growth more sustainable,' he said.
Alliance Trust is constructed on a bottom up basis and the managers have no geographic or sector constraints imposed upon them. At present its portfolio has no exposure to the paper and steel sectors. The portfolio has no officially stated benchmark for it to asset allocate against.
This applies at a stock level as well. If Young and his colleagues are negative on a stock they do not have to hold it, even if it is a large cap. The trust recently sold out of AstraZeneca as Young believes the share price has overshot on the upside.
At present the portfolio has 51% exposure to the UK, with 23% in the US, 9% in Europe, 4% in Japan, 7% in other equities and 6% held in a mixture of cash and fixed interest.
Although Young reduces and adds to exposure of individual stocks, he estimates the average holding period in his global growth investment trust is 10 years.
'We are top slicing and adding to things all of the time. The trust is more actively managed than it sounds,' he said.
One factor that distinguishes Alliance Trust from its compet- itors is its lack of gearing. While it has not had meaningful gearing since the 1960s, Young said he does not rule out using borrowings in the future.
'Although our outlook is less negative than it was, it is not strong enough yet to warrant gearing. If we became remarkably bullish, then we might consider implementing some leverage,' he said.
Top holdings include Shell, GlaxoSmithKline, BP, Royal Bank of Scotland, Vodafone, HBOS, Johnson & Johnson, Wal-Mart Stores, Barclays and Diageo.
Over the three years to 26 April, the share price of Alliance Trust has fallen by 17.5%. This ranks it ninth out of 29 funds in the Global Growth sector, where the average share price fall over the period was 29.4%. Over one year the fund is ranked 11 out of 34, the share price falling by 18.8%, compared to the average loss of 25.2%.
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