Managers of UK equity funds are pouring into large and mega-cap names for the best value amid the current market volatility.
Mervyn Douglas, the £109.3m Norwich Union UK Focus fund manager, says the recent turmoil has thrown up real opportunities for long-term investors.
“Many companies look good value with the dividend yield of the UK market now equal to the yield on gilts,” he says.
Douglas cited blue-chip names such as BP, GSK and Vodafone as attractive propositions.
"Many mega caps offer dividend yields well in excess of 5% backed by strong balance sheets,” he says.
“Even within financials there will be long term beneficiaries of the current distress, two good examples being Intermediate Capital and Lloyds.”
Ralph Brook-Fox, manager of the £19m Resolution Asset Management UK Focus fund, says his blue-chip bias will remain until UK consumers acknowledge the extent of the credit crisis and stop spending.
“We believe we need to be blue-chip and global at the moment in terms of where we are seeking ideas for the portfolio, even if it can appear a little boring,” he says.
“We will only consider domestic mid-cap stocks when there is evidence that UK consumers are taking the challenging economic outlook on board and where forecasts become more realistic.
“That needs to happen before we can bottom fish - we would much rather play overseas earnings and international growth in the meantime.”
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