Manager focus: Mark Hall
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Having cut nearly 15% of his exposure, Mark Hall, the manager of the Rensburg UK Select Growth Trust, has started adding large-caps to the portfolio again.
Since September, Hall has been selling small- and mid-caps in favour of large-caps.
The £326.5m fund’s exposure to FTSE 100 companies is now 74%, up from 60% in the second half of last year. Mid-caps make up 15% of the portfolio, and some 9% is invested in small-caps.
“We became increasingly concerned that the UK won’t achieve the growth rates necessary to pull itself out of recession”
“About 12 months ago there were some encouraging signs that the economy will come out of recession and its financial issues will be addressed,” Hall says. “The fund was mainly invested in blue chip, defensive companies, but we then started to increase [our weighting to] small- and mid-cap stocks.”
Those companies, he says, performed strongly in the second and third quarter of last year. But at the end of September, the team became more and more worried about the macroeconomic outlook for Britain.
“We started reversing the process because we became increasingly concerned that the UK won’t achieve the growth rates necessary to pull itself out of recession,” Hall says.
Hall says stocks with compelling valuation opportunities had become extremely rare. “By the end of 2009, there weren’t a lot of opportunities around,” he says. Within a couple of months, the weighting in large-caps was back to the levels seen last year. (article continues below)
One of the small-cap stocks Hall sold during this process was Taylor Wimpey, a house builder of new homes and investment properties. Hall says he previously bought the distressed stock and sold it after its price had recovered.
He also sold a number of smaller holdings, including the remaining positions in British Aerospace, and Reed, a recruitment firm. The decision to sell those stocks was mainly based on the partial recovery in their respective share prices.
Meanwhile, Hall added to British American Tobacco and Imperial Tobacco as he considers those stocks to be attractively valued relative to the stockmarket. In addition, the key figures such as cash flows are “more predictable” in those sectors, he says.
Other significant new positions include Avanti Communications, a provider of satellite broadband to homes and businesses in rural and remote areas in Britain and mainland Europe, and Associated British Foods, a British multinational food, ingredients and retail group.
“I have never before seen such low cash flow multiples in the pharmaceutical sector”
Hall also added Sage, a business software and services provider, and Wood Group, an energy industry services provider, to the portfolio. During 2010, Hall says, Wood Group will be the nadir of the cycle for the oil service industry. Next year, however, the group’s shares are likely to be rerated in anticipation of a pick up in activity.
The bulk of these portfolio changes were made over the past three months. Hall says he is now content with how the portfolio is positioned and does not plan to make any significant changes any time soon, subject to broader economic conditions.
At the sector level, he favours information technology. “Over the past couple of years, the corporate sector has cut back expenditures on information technology to repair their balance sheets but spending on things like computers and IT infrastructure will soon pick up,” he says.
Hall also takes active bets in pharmaceuticals, support services, and tobacco. “I have never before seen such low cash flow multiples in the pharmaceutical sector,” he says “Factors such as [Barack] Obama’s health care reforms are more than priced in. In most cases, earnings forecasts are based on the worst case scenario, which we don’t expect to become true.”
The manager has negative sector bets in banks and beverages. “We are significantly underweight the banking sector, especially UK banks, because it is still difficult to read a rebound into the balance sheets.”
