Chris Rodgers took over running the Schroder UK Growth Fund investment trust at the end of last year...
Chris Rodgers took over running the Schroder UK Growth Fund investment trust at the end of last year from Jeremy Rigg.
Rigg himself had taken over running the portfolio from Jim Cox earlier in 1999 but then left the group to join Investec Guinness Flight.
Rodgers has also been running the Schroder Income unit trust for the group since 1991. He talks to Leo Bland about how he has altered the portfolio on the investment trust.
What are the objectives of the Schroder UK Growth Fund?
It is a long-term growth fund investing in UK equities and I can invest in the whole market. There is a facility to gear up on the portfolio but we are not taking advantage of that at the moment. When Jim Cox was running the fund he did not necessarily run a portfolio of growth stocks but did well for a time with very much a contrarian style. Jeremy Rigg managed the fund to the end of December last year and spent some time moving towards a portfolio restructuring. Jim Cox had quite an aggressive portfolio with some quite extreme sector bets. Jeremy Rigg was placing more emphasis on growth stocks and bought into companies such as software group CMG and Energis in the telecoms sector.
In what ways are you managing the UK Growth Fund differently from the way it was run by the previous managers?
My objective is to get the trust to be more of a pure growth portfolio. A comparison with the way Jim Cox ran the portfolio offers you more of a contrast than comparing my style with that of Jeremy Rigg. Jim Cox did have a value bias and at the end of December last year the portfolio was still overweight value and high yield stocks and underweight growth stocks.
My objective is to have a more definite growth focus. There are not that many real growth portfolios in the UK with UK equity funds tending to be more of a combination of value and recovery rather than out and out growth. To give a flavour of the sort of stocks I have been buying, the first stock I bought when I took over the fund was CellTech, a biotechnology stock. One of the attractions is that the company's product portfolios are edging towards the market. To give a flavour of the kind of stocks that I have been selling, I switched out of Rank. I think Rank is going to continue to struggle in a UK leisure market where people are not prepared to spend aggressively and are focused on value.
I also bought Pace in the New Year and this is a stock which I have followed for a couple of years now. This company is at the sweet spot in the market cycle. The UK set-top box market is taking off in a massive way. Pace is probably the world leader in this market in the technology sense and if you go back a couple of years it was flat on its back.
How do you select stocks?
I am very fortunate to have an army of analysts in the London research group. There are more than 30. Also, increasingly analysts are looking globally at stocks for example in sectors such as oils and telecoms. The group has a very strong research base and that feeds through a lot of ideas. We have a great flow of ideas and arguably unrivalled access to companies. I spend a lot of time seeing businesses and that all helps. Company contacts are probably the key in terms of picking stocks.
How long do you hold stocks for?
A very long time and for growth stocks that should be even more true. The turnover of the portfolio in the short term is going to be high with the restructuring of the fund but I have been holding companies such as Pace and ARM from the early days.
I would tend to have a minimum of three years for holding stocks although I would not set hard and fast limits. If you are holding stocks for long term growth then there is very little reason to be selling. The time to be selling stocks is if things start going wrong.
How important are views on sectors in running the fund?
When you look at the portfolio you will find that around 75% of the risk is stock risk and around 25% is sector risk. There are some sectors such as telecoms, software and IT where you will have a strategic overweight for a growth fund. In managing long-term growth funds the most important thing is picking the right stocks rather than the sectors.
How much importance do you attach to macro-economic forecasting in helping to deliver outperformance?
Because the sector views are not the most important factor for managing the fund the macro input is not terribly important. A long-term growth stock will also tend to succeed despite change in the economic cycle so it is more about a focus on stocks.
What is your benchmark and how closely do you stick to it?
The benchmark is the FTSE All-Share and to have an overweight in growth stocks you are going to have to be different in relation to the All-Share. There are also some sectors where it does not make much sense for a growth fund to be invested in such as utilities.
By virtue of Schroder UK Growth being a growth portfolio there will be some stock specific differences when compared to the index and some sectors will be absent. It is probably not the best time to be cutting the utilities holdings as this sector has not been performing well but I am looking for opportunities to reduce the utilities exposure.
In terms of other areas of the market I would not be too keen on, I would not tend to class stocks like steel companies as long term growth situations.
Other areas which I would not favour on a long term growth basis would include construction and building materials.
I would not be looking for these as long-term holdings - it is all about the old industries versus the new industries.
What is your definition of risk?
We tend to look at risk in the portfolio in terms of tracking error and the fund is currently on a tracking error of 4%. One of the ways to alter the tracking error is to take bigger sector bets or hold fewe
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