The Threadneedle UK Growth fund has cut technology, media and telecoms stock weighting by up to a ha...
The Threadneedle UK Growth fund has cut technology, media and telecoms stock weighting by up to a half.
Forsyth McGarrity, manager of the Threadneedle UK Growth fund, has been narrowing down the portfolio's holdings since February of this year, principally by reducing the tech, media and telecoms exposure. In February, the portfolio held 102 stocks and this has now come down to 91.
In March, the portfolio held seven telecoms stocks; that figure has since been reduced to three. Over the same period the number of technology stocks has fallen from 10 to eight while media holdings have fallen from nine to six.
McGarrity said the principle reason for these cuts was that the valuations of the rejected stocks were too high. He said he became convinced the companies would not be as profitable as the market believed, and that he was holding too many of them.
He added: "I have narrowed the portfolio's holdings to those which have a credible business plan, good management and sound implementation. Threadneedle's philosophy aims to pick the industry winners, rather than just the winning sectors. I am now taking just this approach with technology stocks."
The fund is presently neutral in technology stocks, having previously been 2.5% overweight in March. In March the index's exposure to technology was higher than today.
The fund held both CMG and Logica in the first quarter. Forsyth said he now prefers Logica, which he believes has a better ability to grow organically as well as having a strong position in the telecoms and utility market. Threadneedle reduced its holding in CMG from 1.2% to 0.5% when Threadneedle felt it spent too much on the acquisition of Admiral, a UK-based IT company.
The fund currently holds 11% in telecoms some 5% below the All Share weighting. Back in March the portfolio had 19%, being heavily influenced by Vodafone's increased weighting in the index following the Mannesmann merger.
One telecom Forsyth has sold since the beginning of the year is Thus, where he had had a 1.5% portfolio weighting. He said it became unattractive as its share price rose to levels that were about what they were worth.
Forsyth has not acquired any new telecoms stocks since March, concentrating instead on simply reducing the fund's telecom holdings. He said: "I am not yet convinced that the time has come to return with any force to the telecoms market. Vodafone is quite a good stock although it has been dragged down by the surprise cost of third generation licences and the short-term concern surrounding the performance of WAP technology."
The fund is overweight by 1.5% in the media sector, investing 7% of the portfolio here, compared to the March figure of 8%. Forsyth said he has not cut media stocks to the same extent as tech and telecoms stocks, and he is still quite supportive of this sector. Forsyth has recently invested in United News and Media. He thinks it extracted good value when it sold off the majority of its television business to Granada, realising it could no longer be a major player in that market.
Forsyth said United News trades at a very large discount to other comparable industry players. Forsyth is also favourable on business magazines and market research companies, which he believes have superior growth prospects to companies such as Emap, a stock which he has sold in its entirety since March. The Threadneedle UK Growth fund has returned 7.5% over the 12 months to 25 October 2000, and is ranked 159 out of 291 funds in the UK All Companies sector.
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