Fund manager: Neil Pegrum
Pegrum's five star rated fund is essentially a special situations fund, unconstrained by strict adherence to one single investment style, and he sees this as a distinct advantage in the current market conditions.
He says: "Although the market is very volatile at the moment, there is a lot of stock specific risk. This fund is very bottom-up focused, so we're used to operating on this kind of basis. Our investment strategy has not changed. We're continuing to look for companies that control their own destiny or companies which have hidden value."
Hidden value can sometimes be detected in a company that the stock market thinks is dull but which have interesting businesses within them, he says. Pegrum says he is also looking for a catalyst whereby that hidden value is released.
At present, the fund remains fairly broadly based, holding no significant overweightings, as has been the case for several years.This is partly due to M&G's risk control processes, which aim to ensure that no one sector or theme dominates the portfolio, and because of the fund's mandate.
No more than 40% of the portfolio is invested at any one time in smaller companies, although this is currently around the 30% mark.
Mid caps and FTSE 100 stocks are each also currently floating around the one third level. Another constraint is that Pegrum is unable to be more than 10% over or underweight any of the sectors that comprise the All-Share index. Pegrum currently has around 100 stocks in the portfolio.
Tracking error, he adds, does not really feature in his selection process. Instead he chooses to benchmark his long-term performance against a combination of the All-Share and Micropal's All Companies index.
An example of the kind of company the fund looks to invest in is a quality cyclical such as KBC Advanced Technologies, he says.
The company provides specialised engineering support and consultancy services to resource companies throughout the world. Its services are designed to enable oil refineries to improve operational efficiency and profitability. KBC's clients include integrated oil companies and independent oil refiners.
British Opportunities also looks for identifiable sub-themes, he continues. One that Pegrum is currently keen on is the computer game cycle.
Pegrum says: "We've taken a position in Eidos, which has produced Tomb Raider among other games, as well as Future Networks, a specialist computer publishing company. The launch of new platforms such as Sony's Playstation 2 and Windows XP should see renewed interest in the sector, and Future in particular has seen a reversal in their fortunes."
"Another sub-theme would be tour operators like Airtours and First Choice, which are looking very cheap against their long-term valuation average. The market is also attractive as although the share price of tour companies has been badly hit by the events in America, these firms in particular have taken a robust approach to getting costs and capacity down.
He adds: "We also think bookings for next year will surprise the market, and there is probably also room for some further consolidation within the industry."
Over the three months to 1 October 2001, the fund posted negative returns of -20.87% on a bid to bid basis, ranking it 275 out of 292 funds in the All Companies sector. This compares to a sector average of -16.18% over the same period on a bid to bid basis.
Pegrum says: "The poor performance over the third quarter of this year is down to the funds heavy exposure to the smaller companies sector, which suffered badly during this period.
"Smaller companies now makes up less than 4% of the All-Share index and many of our competitors that benchmark against it, would have had this kind of exposure. At the time we had exposure approaching 40%."
Over discrete periods the funds returns are far more impressive with it ranked 13 and 25 in the sector over three and five years respectively to 1 October 2001, on an offer to bid basis.
Over three years the £265m fund returned 36.5% to investors and 41.41% over five years.
£92bn transferred since 2015
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