Group's growth fund has been reduced from 100 t0 92 holdings since arrival of simon Smith
Newton Growth is being run with a tighter, more focused portfolio since Simon Smith took the helm last year and will become even more concentrated over the next few months.
Smith felt the fund was too broadly invested and lacked sufficient focus. To this end, he set about reducing its small holdings and cutting underperforming assets.
He said: 'I have gone through the portfolio, which has resulted in a number of holdings being pushed out and weightings in other stocks being increased.
'The number of holdings is down from 100 to 92 and I would be quite happy to get the portfolio down to 80 stocks. I have a hitlist of 13 names that do not have a long-term future in the portfolio and I want to remove them when the time is right.'
Smith stressed the underperforming portion of the portfolio he is keen to change constitutes only a small proportion of the overall fund. That fact is evidenced by the portfolio's strong short-term performance.
While he has sold some of the underperforming assets he feels will not bounce back, there are others he feels are due a rally and should at least reach fair value. Selling now would not be in the interests of shareholders, he believes.
Smith said: 'If the value of a stock has been destroyed and is not coming back, then you might as well sell out. But if it is trading at a significant discount to cash, then you have to stand back and wait for the price to come back.'
Holdings Smith would like to ditch include technology-related stocks, which have seen up to 90% of their value wiped out, but are not confined to any particular sector. Smith took over management of the £78m UK equity growth fund from Clive Beagles in the third quarter last year. In the six months to 12 April, he has lifted the fund into the second quartile, returning 5.3%, bid to bid, compared to the sector average of 4.49%.
The fund still languishes in the third quartile over one, three and five years but performance appears to be on an upward trajectory. Over the calendar year to 12 April, Newton Growth is up 1%, bid to bid, versus a 0.09% sector average return.
The recovery theme is being played out in Smith's fund, with large overweight positions in property, and hotels and leisure.
A number of property companies are trading at sizeable discounts to their NAVs, he noted, while many leisure stocks underwent overly drastic corrections after 11 September.
Smith said: 'We are now starting to see hotel occupancy rates picking up in the global business centres. One of our core holdings is Millennium. It was clear the downgrades were overstated and it has been a key holding for the fund.'
Aerospace and defence is another post-11 September theme Smith believes can bring significant returns for investors. Among his portfolio positions, Smith has upped his weighting in BAE, which he believes should profit from escalating defence requirements across the globe in light of the political tensions in the Middle East and president Bush's gung ho attitude to defence.
The £77.66m portfolio is ranked 164 out of 211 funds in the UK All Companies sector over five years to 1 April 2002. It has returns 16.6% compared to an offer to bid sector average of 30.29% and 38.58% for the All-Share index.
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