Fleming Select UK Income is suffering from short-term underperformance on the back of a slowdown in ...
Fleming Select UK Income is suffering from short-term underperformance on the back of a slowdown in the oil and gas sector
The fund, which is run by Gary West and has also suffered from lack of exposure to smaller companies, is benchmarked against the FTSE 350 High Yield Index restricting Fleming Select UK Income's exposure to only large and mid-cap companies. The FTSE 350 High Yield Index also has overweight positions in the oil and gas sector compared to the FTSE All-Share, a sector which has seen relative underperformance in the short term
Fleming Select UK Income, which has an frAA rating, is ranked 192 out of 272 funds in the UK All Companies sector over the three months to 8 September. The fund is third out of 223 over three years on growth of 85.7% and is 53 out of 256 over one year on growth of 23.7
The High Yield index has a series of large weightings against the FTSE All-Share. For example, BP Amoco is 7.4% of the All-Share and is 16% of the High Yield index. The oil and gas index is 23% of the High Yield index but only 11% of the All Share. The High Yield index also has a zero weighting in pharmaceuticals, which make up 9.7% of the All-Share
West, who is joint head of UK equities at Fleming Asset Management, said that the portfolio tends to stay fairly close to the weightings in the High Yield index. The fund tends to keep within around 1% to 1.5% of the High Yield weighting where unit trust rules allow. The fund holds around 140 stocks while the High Yield index typically has around 150 stocks in it
West said: "The fund is trying to invest in oversold, undervalued large companies but one of the reasons that the fund has underperformed over three months is that the oil and gas sector has gone to sleep a little bit. We also do not have small cap holdings - an area of the market which has been outperforming the All Share. Generally, we are looking to buy cheap stocks that tend to have good earnings momentum
The FTSE 350 High Yield index rose by 13.8% in the year to 16 September compared to a 9% rise in the FTSE All Share in the same time period. In the three years to the 16 September the High Yield index is up 71.1%, while the FTSE All Share is up 58.9
The composition of the High Yield index is altered annually - a change which was made earlier this year. Previously its composition was altered quarterly. The High Yield index is also overweight banks with 24.6% compared with 14.4% of the All Share. HSBC is 9% of the High Yield index and is 4% of the All Share. Other comparative weightings include 3% in general industrials against 4.5% for the All Share and 7% in basic industries for the High Yield index and 4% for the All Share
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