By Robert Stock Rothschild Asset Management has restructured the Five Arrows North America fund and...
By Robert Stock
Rothschild Asset Management has restructured the Five Arrows North America fund and 60% of the current 72 holdings are new to the portfolio.
The US equities team, led by Crispin Cripwell and including Anna Piney, Scott Irving and Alex Robarts from CGNU, overhauled the fund a few weeks after their arrival on 4 September. They were hired to run the fund from London; previously it had been managed in New York.
The number of positions taken has increased from around 60 stocks to 72 with the main focus being in technology, most notably software, financials and transport. The sector split of the new portfolio is technology 33.2%, financials 17.5%, healthcare at 10%, non-cyclical consumer at 3.5%, cyclical consumer with 12%, basic materials at 0.5%, industrials with 7.5%, while communications has a 5%, weighting. Energy makes up 4.7% of the portfolio, transport 1.5%, and utilities at 3.0%.
Cripwell said: "The reason we have widened the portfolio is to achieve match the returns of S&P500 plus 2% within a tracking error of less than 3.5%. We believe 70 stocks is the minimum number to enable sufficient diversity to meet these objectives."
He said the investment process used to construct the portfolio had four dimensions. First, macro factors including economics, politics and currencies. Second, a qualitative assessment of each sector and the companies within it. Third, a quantitative evaluation of stock and sector, analysing valuations. Fourth, technical analysis to assess market psychology, relative sector performance and volume of activity.
Cripwell said: "Stock selection is derived from analysis of all four dimensions by way of anticipating their impact on an individual company's share price." The most significant overweights in the reshaped portfolio are technology and financials.
Technology is 2.5% overweight, with the focus on software and networking. In software Cripwell's holdings include Adobe Systems, Ariba, BEA Systems and Siebel.
The focus on customer relationship management software and application service provider software reflects increasing desire by companies to use Java-based software to piece together and deploy disparate corporate applications onto one web-based platform. These are often held in many different geographic locations and include databases, transaction-processing systems and other mission-critical applications.
In networking, Cisco, Nortel, Corning and JDS Uniphase are among Cripwell's holdings. He said the 2.25% overweight in financials avoids richly valued brokers and insurance companies, whose shares have performed well this year.
He prefers laggards such as Washington Mutual, MBNA, Fannie Mae and Fifth Third Bancorp which are set, after underperforming since early 1999, to do well against a macro-economic background of a slowing economy and low inflation.
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