Colin Mortin's income fund loses out due to its high exposure to large caps. BWD Rensburg's UK equit...
Colin Mortin's income fund loses out due to its high exposure to large caps.
BWD Rensburg's UK equity income unit trust is underperforming over three months on the back of underexposure to small and mid caps.
The fund is run as a blue chip UK equity income fund and has missed much of the outperformance of small and mid caps in the past few months. The BWD UK Equity Income trust has some 80% in the FTSE 100, 14% in mid cap stocks, 4% in small caps and 2% in fixed interest. The fund, which has an frA rating, is ranked 58 out of 88 funds in the UK Equity Income sector over the three months to 21 July on growth of 1.9%. Over one year it is 26 out of 84 on growth of 1.2% and is sixth out of 83 over three years on growth of 77.4%.
Colin Morton, who runs the fund, put the three month underperformance of BWD UK Equity Income down to insufficient weightings in small and mid caps that have performed better that the FTSE 100 Index in recent months. He also said that the portfolio's bias towards pharmaceuticals and life insurers has also harmed short-term performance as many of these stocks have underperformed recently. Morton maintained that areas like these are set to benefit from long-term growth trends.
He said: 'We have had a very good three to four years but not such a good last quarter. People have been moving into the cyclicals stocks as they are getting more confident about the UK economy. We were slow to change and could have been a bit more aggressive in changing our portfolio, but we believe that growth stocks look better value now.
'The way the fund is run is to identify the areas of the market that are set for long-term growth in order to deliver outperformance. One of the chief themes we follow is demographics. This is a good theme as it is not a forecast, it is a fact. You can tell what is going to happen to the structure of the UK population over the next 10-15 years. There will be a substantial increase in the number of people over the age of 60.
'One of the areas that we still like is pharmaceuticals. The average person over the age of 60 will consume more in the way of pharmaceuticals products than 25 and 30 year olds.'
He said that another long-term thematic positive for pharmaceuticals companies is the economic development in emerging markets. This should mean that as these economies grow more prosperous they will buy more products from the pharmaceuticals giants.
Morton also favours financials and said there is an increasing trend towards saving among people aged around 30-35 as they realise that the State will not provide them with a comfortable retirement income. He added that the UK financial sector is set for more merger and acquisition activity over the next five years.
The fund's top 10 holdings include a 6.88% weighting in BP Amoco, 4.9% in BT, 4.01% in Glaxo Wellcome, 3.83% in Vodafone AirTouch and 3.34% in HSBC. The fund also has 2.99% in CGU, 2.83% in Shell, 2.81% in SmithKline Beecham, 2.7% in Lloyds TSB and 2.56% in NatWest.
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From 1 March