Allianz Dresdner's Trevor green believes mid-cap stocks offer the most potential for growth
Trevor Green, manager of the Allianz Dresdner UK Growth fund, holds more than double the FTSE All-Share weighting in mid-cap stocks.
Green, who joined Allianz Dresdner Asset Management (Adam) early last year from Credit Suisse, believes the mid-cap area of the market demonstrates the best potential for unrecognised growth.
'I am looking for future growth, rather than growth that has already arrived,' he said.
Green describes himself as a growth investor who pays little attention to market movements.
'Growth to me can be found in any sector,' he added. 'It is really those companies that generate cash above the market average and are reinvesting in their business for their future.
'I am looking to invest in future rather than historic growth. Each company will be bought for its fundamentals. Therefore, I am looking for companies that will grow irrespective of the market and economy.'
A good example of this is the UK Growth fund's exposure to the general retail sector.
Although the consensus is that the consumer is buoyant, Green does not own any FTSE 100 general retail stock.
'There are strong sales but the consumer is very price conscious,' he said. 'Some of these companies are seeing good top-line growth but they are sacrificing margin. The high street is very competitive and I am negative on the general retail sector overall.'
Nevertheless, the UK Growth fund's second biggest overweight stock position is retailer Lastminute.com. Green said regardless of what happens to consumer spending, Lastminute.com is a growth company as individuals are becoming more confident of using the internet to book holidays.
'Even if consumer confidence declines, the market is still exceptionally strong,' he added. 'This is an example of how I use the whole 350 index. I may not particularly like the retail sector but I can find a company within that sector with really good growth characteristics.'
The retail sector represents around 3.6% of the All-Share and Green holds 3.6% in Lastminute.com alone.
A theme that is evident in both portfolios is a bias towards pharmaceuticals. However, the UK Growth portfolio is underweight GlaxoSmithKline.
'We see good growth in terms of strong long-term healthcare spend,' Green said. 'However, in the UK, GlaxoSmithKline does not have significant new drugs. Because it is such a multi-billion dollar company, it is difficult for it to produce a blockbuster that will materially affect its overall group sales.'
Green believes outside the FTSE 100, there are good pharmaceutical investment options. He owns four mid-cap pharmaceutical stocks, including Celltech and Galen.
The UK Growth fund, meanwhile, is underweight oil stocks including BP and Shell. Green said over the past eight months, BP has consistently missed its targets.
Green took over management of the UK Growth fund last April and the £55m UK Mid Cap fund in May.
He runs 60-80 stocks in the UK Growth portfolio and targets a tracking error of 4%. Risk controls are aimed at the sector rather than stock level.
The five stocks in which the funds are most overweight are Powderject,Lastminute.com, ICAP, Royal Bank of Scotland and Xstrata.
The five in which it is most underweight are Diageo, BP, Tesco, National Grid and Rio Tinto.
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