Fleming Mercantile has avoided being caught out by the recent sell off in technology stocks after bu...
Fleming Mercantile has avoided being caught out by the recent sell off in technology stocks after building up a position in old economy stocks .
Martin Hudson, manager of the £850m trust, sold out of many mid cap technology holdings when they were elevated to the FTSE 100 in March. In total £100m of stock was sold in Baltimore Technologies, Psion, Celltech, Freeserve, Nycomed Amersham, Thus and EMAP. The majority of the money was recycled into the stocks relegated back to the FTSE 250 index. Purchases included Powergen, Scottish & Newcastle, Whitbread and Allied Lyons.
Hudson said that he pays particular attention to the risk management of the portfolio and added that given the strong share price rises of the stocks, the decision whether to sell immediately or not was not difficult. His risk averse approach means active sub-sector weightings are kept to plus or minus 3% against the FTSE All-Share excluding FTSE 100, while no active stock weighting is greater than 1%. The split between the FTSE 250 and Small Cap stocks is kept relatively neutral at 75% and 25% respectively.
Given the degree to which risk controls are implemented, it is interesting the trust was able to generate such outperformance of its benchmark index over the past year, according to Carolyn Coke, investment trust analyst at Deutsche Bank. Over the 12 months to 31 January the NAV total return was 79.1% compared with only 32.1% from the FTSE All Share (ex FTSE 100).
Coke said the outperformance was not generated solely in the second half of the year when companies, such as Baltimore and Psion performed well. She added: "By the half year stage the NAV was 7.2% ahead of the benchmark as the value stocks within the portfolio outperformed."
The good performance of the trust's NAV is not reflected in its share price with it standing at a 25.4% discount as of 19 April. Coke believes as the trust has no expensive debt and given the recent performance and the new portfolio, it is well positioned to endure the current volatility. She said: "We regard the trust as a buy. It should be seen by investors as a core holding for exposure outside the FTSE 100."
Over the three years to 12 April the trust is ranked 11 out of 31 in the Micropal Small Companies UK peer group. During the period the trust's share price slightly underperformed the sector average rising by 71.7% compared to a mean rise of 71.8%.
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