Managed funds are increasing their UK equity weightings on the back of resurgence in old economy sto...
Managed funds are increasing their UK equity weightings on the back of resurgence in old economy stocks, according to Robert Burdett of Rothschild Asset Management.
Suzanne Rogers, fund manager for the Newton Balanced Fund, agrees: "We are currently underweight in the UK but have increased our position substantially this year. We have bought a lot of old economy stocks that have not done well lately."
The purchases, including paper stock DS Smith, Hanson in building materials, and Shell and BP Amoco in oils, reflect a belief that much of the market is factoring in a recessionary outlook based on forecasts for interest rates. Instead, Rogers sees supply constraints and earnings growth potential in these stocks.
Burdett says the current asset allocation split of the Five Arrows Independent Income Fund has 52.4% in UK equities, 15.7% UK fixed interest, 13.8% North American equities, 9.8% European equities, 4.8% Japanese equities, 1.9% Asia/ Pacific ex-Japan, 0.7% emerging markets, and the balance in cash.
He says: "We are neutral the UK, and neutral on fixed interest. We are overweight Asia/Pacific, Europe and Japan and underweight North America and emerging."
Burdett says the UK position has been brought up to neutral from an underweight position earlier in the year and might even go positive in the near future. He says that the UK had been the main underperformer of the world's equity markets, while Europe had performed rather better than Rothschilds had expected. Because of that, he says there is more potential in the UK market, as the consensus of opinion on European equities leaves little room for fund outperformance.
The fund's underweighting in North America is more a reflection of better relative value elsewhere rather than pessimism about America's equity markets.
Rothschild is taking no big bets on the future of the Japanese market, but believes it may have turned the corner for good. The group has a long term belief in growth in the Asia/Pacific arena. Burdett also believes fixed interest is over the worst and says: "We would expect this part of the portfolio to start to perform a little better now."
Rogers says the weightings in the Newton Balanced Fund are broadly guided by the WM balanced managed fund index, and take no strong geographical bets, preferring a global sector approach to asset allocation.
Currently the fund has an overweight total equity exposure of 85.4% with 51.9% in the UK, 10.2% in the US and Canada, 5.7% Pacific ex-Japan, 5.1% in Japan, 9.4% in Europe ex-UK, and 3.1% in Latin America and the emerging markets. It is underweight bonds at 11.8% with 7.2% in UK bonds and 4.6% in international fixed income. Cash is neutral against the benchmark at around 3%.
Globally her positioning recognises value in mining, technology stocks and industries where there is a supply squeeze such as in memory chips, which has led to strong holdings in Japan and Korea.
In the US she holds pharmaceuticals, tobacco stock Philip Morris, and some media stocks like the AM/FM radio network.
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