RSA Investments high performance UK focused fund has underperformed the index in the first three mon...
RSA Investments high performance UK focused fund has underperformed the index in the first three months of its life, writes Fiona Henderson.
The RSA UK Prime fund, launched in April this year, has fallen by 7.82% in the three months to 3 August 2001 compared to a 5.9% drop in the FTSE 100. Mike Felton, manager of the portfolio, said: 'UK Prime initially performed well but as the fund has a cyclical bias and a high market beta it has seen some drops.
'We take a stock specific approach to the fund and although there are no sectoral themes we are following, a bias in the portfolio towards cyclical stocks has developed.'
The economic scenario is panning out as forecast, according to Felton. He said: 'The US economy is coming out of its decline and the domestic industry is fairing as expected.'
Felton sees Greenspan's interest rate cuts already having an impact in the US but he has been surprised at how quickly the fall out from North America has spread to Europe.
He added: 'The UK is comparing well and so there is a domestic bias in the portfolio. There is still scope for interest rate cuts in the US and recently expectations for more cuts in the UK have risen. The GDP numbers indicate that this is more than possible in response to the global slowdown.'
Corporate newsflow is poor although the news from the US is not getting any worse, according to Felton. He said: 'Coincident GDP data does not look good, although leading indicators are beginning to suggest that there is a recovery on the horizon. There is very little visibility, which is leading to low valuations and contrasts last year where the low visibility led to high valuations.'
When investing Felton looks at relative values and as there are no sectoral requirements on the portfolio's many sector weightings vary from the index. He has only 1% in telecoms against 10% in the index.
He said: 'The fear with telecoms is the pressure on margins, overcapacity and concern over poor balance sheets.'
By contrast he has 10% in construction and building against a 1% index weighting. The themes within construction are outsourcing and house building.
Felton has a weighting in Hanson, which he feels will benefit from a roadbuilding programme in the US, and in McAlpine, which he believes is undervalued relative to its peers.
L&G is the largest position in the fund. Felton said: 'It suffered a bit from the Friends Provident float but the shares have performed well in both absolute and relative terms.'
Other holdings highlighted by Felton include oil and gas company Cairn Energy and pub company JD Weatherspoon.
He said: 'Cairn shares are good value and the company looks better than its peer group. If oil prices fall then Opec will step in so there is also some protection on the downside.'
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To 1,552 families and businesses
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Lifetime and annual allowances