Fund is up 15.05% from 3 March to 28 July, following the arrival of james buckley as manager
The Solus UK Special Situations fund is beginning to show signs of a recovery in performance, following a turbulent two-and-half years since Nigel Thomas gave up the helm to run a similar mandate at ABN Amro.
Thomas has since moved to Framlington and the ABN fund has been merged into Artemis UK Special Situations. However, investors who remained in the Solus vehicle from 1 February to 3 March 2003 have seen returns of -59.12%, compared to a UK All Companies sector average of -42.25%.
Reasons for the fund's downturn have largely been attributed to the decision of Thomas's replacement, Nick Greenwood, to take a significant weighting in Aim stocks, which have not performed well.
Greenwood left Solus in March this year and was replaced by James Buckley, who also manages the group's European Growth fund.
Since Buckley took over, he has made a number of changes to the fund, which have resulted in an upturn in performance. The fund grew 15.05% from 3 March to 28 July, only marginally underperforming the UK All Companies sector, which was up 15.58% over the period.
Buckley said: 'In the first two weeks of running the fund, I moved its cash position from 15% to being fully invested and sold out of most of the its 12% exposure to Aim-listed stocks.
'The money this gave me was invested into the FTSE 100, with a bias towards higher beta stocks, as I took a bet on a recovery in the market in early March.'
Some two-thirds of the portfolio is now invested in the FTSE 100 and Buckley is running overweight on financials, such as Legal & General, HBOS, Royal Bank of Scotland and Pearson.
However, in the past few weeks, he has been selectively reducing this FTSE exposure in favour of more small and mid-cap stocks, although, unlike Greenwood, he will not invest in companies with a market cap below £100m. Buckley said: 'I am optimistic on the outlook for the UK stock market and believe it will make further gains over the next 12-18 months. This is based on our view that the US stock market and economy will recover in the second half of the year and going on into 2004.'
Accordingly, he added, he will continue to run with high beta holdings and remain underweight on so-called defensive areas of the market, such as pharmaceuticals and telecoms.
As well as financials, Buckley is also overweight industrial cyclicals, with holdings in Invensys and construction material company Nova. These sort of companies will benefit from a recovery in the market, he said.
Because of concerns over consumer debt, however, the fund is underweight consumer cyclicals. Buckley said the key issue is what happens to interest rates.
At its height in 1999, under Thomas, Solus UK Special Situations had more than £50m in assets. It fell to £17m in March 2003 but, since Buckley took the reins, has climbed back up to £20m.
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