The UK has been a safe haven in Europe according to some of the top performing fund managers in the ...
The UK has been a safe haven in Europe according to some of the top performing fund managers in the sector over the past year.
Consumers have continued to spend and there are opportunities in defensive positions and areas exposed to the domestic market, such as construction and building materials.
The CLI Invesco Perpetual High Income fund is ranked second between 1 November 2001 and 1 November this year, with a performance over the period of 9.53%.
Neil Woodford, manager of the fund, has stuck with a pessimistic outlook on the global economy but is positive about the UK.
While the core of the continental European economy is struggling, the UK remains relatively strong, according to Woodford.
'The recent problems in Germany and France, with specific regard to their inability to meet the terms of the stability pact highlight clearly the problem of disappointing growth and low consumer spending at the heart of Europe,' he says.
In contrast, the UK will be the fastest growing OECD economy this year, with strong domestic consumption-led momentum in the economy, he says.
Woodford explains: 'The housing market is relatively robust, employment is still very strong and government spending, particularly on public sector wages, will continue next year.'
Woodford emphasises areas such as such as manufacturing, exports and investment spending that are still going through difficult times.
But he says: 'A scenario of unbalanced growth is still better than no growth at all and, more importantly, the consumer is well placed to continue supporting the economy for the foreseeable future. Domestically, therefore, the outlook is relatively bright.'
There have been no major changes to sector or stock positions in the fund in recent months. Woodford still likes defensive areas of the market, including tobacco and utilities, from which he has continued to add positions recently.
An example is this area is Centrica. 'Shares in Centrica have fallen dramatically in recent months on the back of, I believe, misplaced rumours and fears about their energy trading business and questions over their US strategy,' says Woodford.
'However, the company appears to be a very interesting low-risk growth utility and now features quite prominently in the portfolios. In the Income Fund, for example, Centrica represents about 2.5%.'
Woodford has also maintained exposure to sectors that are exposed to continuing strength in the UK domestic economy, such as the construction and building materials sector. There are also some good situations in the UK retail sector, according to Woodford. He holds positions in Marks & Spencer, MFI, Signet and a relatively new position in Kingfisher.
Woodford also likes a number of special situation sectors. 'In the insurance sector, for example, we have built up positions in a number of Lloyds vehicles and small property casualty companies,' he says.
'Such stocks are exposed to the strong bounce in insurance premium rates following the huge claims of last year, but also the destruction of capital that has taken place within the industry.
'We are heading towards the benign phase of a very aggressive insurance cycle and, by playing that cycle with exposure to such companies, we believe it is possible to make good money.'
The CLI Fidelity Special Situations fund, managed by Anthony Bolton, is ranked 14 over the period within its assets class, with a change in performance of 2.65% over the period. The fund follows a value style and tends to invest in medium and smaller companies.
Bolton has managed the fund since launch in 1979 and has stuck to his style, seeking valuation anomalies throughout.
According to Alex Tarver, senior fund analyst to the fund, Bolton has been relatively defensive for the past two years.
His style has prospered, however, coming off the back of the tech and telecoms bubble into a stock pickers market with a value bias, says Tarver.
Bolton came into the year overweight leisure, transport and travel following the 11 September terrorist attacks in the US. He felt a number of companies in the sector that had lost share value would bounce back and were at good valuations.
He has also been overweight insurance firms. The insurance industry in general raised rates after 11 September and that has benefited companies, especially those that did not face large numbers of claims, says Tarver. Going forward, Bolton is looking keenly at the implications of a war with Iraq, which was not priced in to many companies, according to Tarver.
He is also looking at the tech sector where he feels a number of good companies are cheap in price.
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