Richard Buxton has been less aggressive with the turnover of stocks on the Schroder Alpha Plus fund ...
Richard Buxton has been less aggressive with the turnover of stocks on the Schroder Alpha Plus fund than he had expected when the concentrated fund launched a year ago last week.
When the fund launched last year Buxton expected its turnover to be in the region of 200%-300%. However, he said such has been the market environment that there has been a lack of opportunities to be aggressive and as a result the turnover has been less than 100%.
A major factor underlying Buxton's decision to continue holding a number of positions in the portfolio has been the fact that from launch on 4 July 2002 to 5 July 2003, the fund has returned 7.99% on an offer-to-offer basis, outperforming the UK All Companies sectors' -7.03%.
Buxton said the rationale for launching the concentrated fund last year was to allow it to benefit from what the group perceived was going to be a volatile market environment. So far he believes that rationale has been entirely justified.
Since March, Buxton has taken the fund's beta up from 0.89 to 1.24 through the buying of more industrial cyclical stocks and positioning out of defensive stocks, as he believes the outlook for equity returns has improved. Although there has been some profit-taking recently, Buxton thinks there are a sufficient number of investors who expect this rally to be more sustainable than the bounce witnessed in October and November last year.
Within this current rally Buxton is playing three main themes in the fund, financial stocks, industrial cyclicals and companies that will benefit from a pick-up in corporate expenditure. Among financials, 10% of the fund's assets under management are currently invested in the life assurance sector. Buxton said while these stocks have underperformed so far in the current rally, this is primarily a result of negative sentiment and the stocks are now looking very cheap.
The cyclical industrials cycle peaked in March 1999, according to Buxton, and has since been bouncing along the bottom, due to the three-year bear market. However, in the past six months Buxton has started buying them again as he feels there is a chance to at least double the upside.
Sectors expected to benefit from greater corporate spending include leisure and hotels, media, transport and oil, all of which between them constitute some 20% of the portfolio.
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