Both Scottish Value Management (SVM) and Resolution Asset Management have been positioning their por...
Both Scottish Value Management (SVM) and Resolution Asset Management have been positioning their portfolios to be overweight the UK resource and financial sectors.
The SVM UK Opportunities fund, managed by Neil Veitch and Margaret Lawson, has recently increased its overweight position in insurance broker, Jardine Lloyd Thompson.
Veitch says: "The company has recently issued a warning over future profitability and has downgraded earnings by 20%. However, we feel the decline has been overdone and with a new chief executive for the company, there is no incentive to let overly optimistic numbers in the marketplace. We think profitability numbers will increase once he has a track record of managing the company."
Another stock Veitch is overweight in is financial services firm Cattles. He says the company has underperformed the market over the past 18 months, with the stock's trading price hitting a record low of £267.88 on 28 October 2005. This compares to £419.75 earlier in the year.
"The company has now improved its business by offering customers a direct repayment method rather than door stop lending," explains Veitch.
"It has also cut costs by reducing the number of offices in the country."
When Veitch bought Cattles in March this year it was trading at 11 times earnings compared to the market average of 13.5. However, he says it is now trading at 13 times earnings compared to the market average of 15.
Meanwhile, Ralph Brook-Fox, investment manager at Resolution Asset Management, has advised the group's UK managers to be overweight in financial group Standard Chartered.
He says: "Although Standard Chartered is trading at 16.3 times earnings compared to the market average of 12.5, it has a major base in Hong Kong and China, and will benefit from growth of the Asian region."
In the resource sector, SVM UK Opportunities is overweight oil producer Venture Production. Veitch says the company has been buying oil and gas fields in the North Sea to improve output and in the past six years has increased production from 200 barrels of oil per day to 44,000.
Veitch believes Venture is undervalued at nine times earnings compared to the market average of 12 times. He also expects production to increase to 70,000 barrels per annum over the next few years.
The strategy for Resolution has been to increase exposure to resource stocks in the UK and move positions from underweight to overweight, according to Brook-Fox, who believes commodity stocks will remain stronger for longer. For example, copper was trading at $268 (£134.15) on 8 May 2006 compared to $188 on 30 January 2006, while zinc, which was previously trading at $94.89 on 17 February 2006 increased to $162.73 as at 8 May 2006.
Resolution is also advising its managers to invest in mining group Vedanta Resources. Brook-Fox expects the company to benefit from any further increase in commodity prices. For example, the company results show Vedanta has increased zinc production by 33% for 2006.
The stock price for the firm has also increased over the past year to trade at £1,774.50 on 11 May 2006, compared to £373.63 for the same period last year.
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