Tim Russell is in the process of upping his exposure to large cap stocks in the HSBC UK Income & Gro...
Tim Russell is in the process of upping his exposure to large cap stocks in the HSBC UK Income & Growth fund bel-ieving a liquidity-led market rally is forming.
Russell, who has headed the fund since its inception on 31 July 1998, said economic indicators show a build up of liquidity, which he believes will drive the market principally through large cap stocks.
The areas that Russell is focusing on increasing weightings are financials and selected high beta stocks in the technology sector, both areas which he believes will lead the rally.
He is reluctant to reveal his exact strategy because he says past revelations about his plans have caused price movements.
However, Investment Week understands that these moves will include upping weightings in financials including Abbey National, HSBC, Royal Bank of Scotland and Barclays.
These are also likely to include an increase in the fund's existing weighting in BP and Vodafone, which stand at 3.6% and 8% respectively.
The frAA-rated £155m fund is designed to appeal to risk-averse investors. It is stylistically neutral because it is a neither growth nor value oriented but can be 'tilted' either way depending on market conditions and the point in the business cycle.
It has discrete returns on an offer to bid basis of 21.75% between 17 August 1998 and 16 August 1999, placing it fifth out of 253 funds in the Micropal UK All Companies sector, and 10.37% between 16 August 1999 and 14 August 2000 ranking it 66 out of 284. Over the three months to 14 August it has returned 5.02%, bid to bid.
Russell said: "We have a sense that liquidity is building up. Cash levels in pension funds have increased and cash flows into unit trusts are strong. There are more share buy-backs and less equity issuance and we can see demand from overseas.
"I am currently underweight financials, but I am looking to add to positions in the sector. We have been underweight banks for a long time and structurally that is still the right way to be but in a liquidity driven market financials is one of the areas that is likely to lead the market rally.
"This is very much a stock picking sector and I have broadly been right to be overweight the commercial banks and underweight the mortgage banks, though."
Despite positioning for a liquidity-led rally, Russell said he is taking no aggressive bets against sectors as compared to his benchmark, the FTSE All Share.
At the moment the fund has a broadly neutral style tilt, favouring neither growth nor value, as Russell believes the economy is poised at a point where neither will be the next big market driver.
His underweight positions, as of 31 July, included non-cyclical services and consumers, financials, IT and resources. He has overweight positions in basic industries, general industrials, cyclical consumer goods, utilities, and cyclical services.
Russell said the fund's top 10 is largely dictated by his relatively narrow tracking error to the index.
His top 10 stocks on 31 July, 2000 were Vodafone Airtouch at 8.0%, BP Amoco at 3.6%, Shell Transport & Trading at 3.0%, Smithkline Beecham at 2.8%, HSBC at 2.8%, Astra Zeneca 2.4%, Glaxo Wellcome at 2.3%, British Telecom at 1.9%, Signet at 1.8% and Royal Bank of Scotland at 1.8%.
Initial charge on the fund is 5.25% which is currently being discounted to 4% with 3% commission offered to IFAs.
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From June 2019