UBS UK small caps fund, managed by frank manduca, favours a mixed stockpicking strategy
Frank Manduca's UBS UK Smaller Companies fund will be equally balanced between long-term analyst-led ideas and shorter-term stock picks created by market anomalies.
The fund is launching on 17 February, with an initial fixed offer period of two weeks and a unit price set at 50p, ending at noon on 28 February.
The fund will have a retail and an institutional share class. The retail class will carry a 4% initial fee and a 1.5% annual management charge. There is 3% commission available, with 0.5% trail, which applies to any business, not just Isas and Peps.
Half of the fund will be aggressively positioned to take advantage of valuation shortfalls in the mid and small-cap market, while the stocks in Manduca's core list will be profitable, cash-generative dividend payers with a robust business franchise.
This core list will be chosen by the group's team of four small-cap analysts and will take input from its 19-strong large-cap analysts who, Manduca said, provide a macro input for cross-reference purposes.
Manduca added there have been many forced sellers in the current market environment and, as a result, his investment process is throwing up a number of undervalued stocks he believes will generate positive returns over the next 12-18 months.
The investment process at UBS Global Asset Management uses a series of valuation methods with a qualitative overlay in the small and mid-cap area.
With the UK market set to be less thematic in 2003, Manduca believes stock selection skills will become more important, which is where he feels the fund can add value for investors.
He said: 'While we have had a difficult market period, value has started to come out in small- and mid-cap stocks for a number of reasons. For the first time in a number of years, we believe UK equities look good value.'
He added the FTSE All-Share is currently on a P/E of 15 times, with a yield of 4%, compared with the Hoare Govett Smaller Companies Index (HGASCI) Index P/E of 12.5 times and yield of 4%.
'Growth rates in the UK will stabilise in 2003 and there will be an improvement towards the end of the year,' he predicted. 'In 2004, growth rates will remain at lower levels than experienced in the past 20 years but we are still anticipating increases that provide a backdrop for performance in the small- and mid-cap area.
'Following every period of underperformance from smaller companies, corporate activity has increased and we have been seeing this happen lately. A number of venture capitalists are looking to utilise their cash piles and the number of deals taking place has increased.
'It makes sense for larger companies to buy similar businesses to theirs, to use as bolt-ons and look for uplifts in earnings per share growth.'
Such deals, Manduca said, provide cash back to investors to reinvest elsewhere. However, he believes there will be an imbalance between more cash coming in than going out of the sector.
This, he said, is because there will not be many new issues in the market in 2003.
Cash raisings and rights deals will be very selective, as the majority of deals will not meet the quality thresholds set by the banks, he added.
The fund will be small and flexible to take advantage of such anomalies, Manduca said.
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