Deutsche UK Equity Income manager expects to continue in the role after Adrian Frost returns from sabbatical
Graham Ashby, manager of the Deutsche UK Equity Income fund, has moved the portfolio overweight life assurance and decreased its weighting in the Smiths Group since taking over from Adrian Frost earlier this year.
Ashby began managing the fund in March, following the departure of Frost for a six-month sabbatical. Whether Frost returns in September or not is unclear, but if he does, Ashby believes he will not be returning to manage the UK Equity Income fund.
He said: 'I am running the fund as if it is for the long term. If and when Frost returns, a decision will be made on his responsibilities. We would welcome him back but it is doubtful that he will return to manage this portfolio.'
Since March, Ashby has decreased the fund's weighting in the Smiths Group, which was the largest overweight position when he took over. 'When I inherited the fund it was the largest overweight, at 2%, and we have reduced this to 0.5% overweight,' he says. 'It is an aerospace and defence company, with a number of businesses since acquiring the engineering and aerospace group, TI. The shares performed well and we have taken the profits.'
As of 20 June, the Smiths Group made up 0.347% of the FTSE 100. Ashby has increased the fund's weighting in Bunzl making it the biggest stock bet in the portfolio. It was a paper and packaging company that now offers network support services for food retailers that outsource their packaging.
The portfolio has a marginally larger position in GlaxoSmithKline because Ashby believes the market has been too pessimistic about the medium-term outlook for profits. He said: 'The drugs are doing well and they have the right technology to be effective when genomics comes to the fore. There is concern that there will be a dip in 2004/5 but the merger has kept the senior management from SmithKline and there is a track record for external life cycle for existing products and patents.'
At the moment, the fund is positioned underweight in telecoms, both in Vodafone and new telecoms companies such as Colt and Energis. Ashby said: 'Vodafone is a good business and has an excellent global presence, which is beneficial at the bottom line. The company has a high proportion of business customers that travel and use phones during the day. Its problem has been with third generation licensing and the disappointing Wap service.'
The largest sector weighting is life assurance. Ashby said: 'This is mainly as a result of increasing our position in Legal & General, rather than a macro call. L&G offers good value featuring a 30% yield premium and an increase in average dividend growth.
'We also hold CGNU, a good business with a good management team, and the more specialist companies, Britannic and Countrywide. We don't hold Prudential as we don't believe there will be a share comeback. It is sub-scale in the US and needs cashflow to finance its Asian operations. The UK business is not going anywhere.'
Ashby is positive on the UK market going forward and believes there is scope for further interest rate cuts. He said: 'This will ultimately boost the economy and equity market. As the market anticipates better news, we would expect a recovery. The UK economy and equity market is relatively defensive as there is high exposure to pharmaceuticals, oil and banks. In the long term, the market should pick up, but it is difficult to call when.' Investment Week 25 June 2001
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