By the end of 2008, Derek Stuart, the manager of the Artemis UK Special Situations fund, was fearful that a 1930s style slump was imminent. As a defensive measure he moved 60% of his portfolio into large companies, the highest weighting in the fund’s history.
Since then several things have changed in the funds.
First, over the course of the year the fund has managed to attract £300m of new investment, growing from £700m to over £1 billion.
Secondly, he has significantly altered the shape of the portfolio, with small- and mid-caps again dominating, accounting for 50% of the assets.
“I would like to think we won’t get back to 60% in large caps,” says Stuart. “In a normal market environment we expect to have more of the fund in small and mid caps, but we are always driven by where the stockmarket ideas are.”
In addition to altering the fund’s capitalisation weighting, Stuart spent the first quarter of the year reducing the fund’s defensive stance. The exposure to utilities was cut from 9% last year to 1% in August, while the portfolio’s weighting to financials was upped from 12% to 25%.
Over 12 months to September 7 the fund was ranked 71 out of 309 funds in the Investment Management Association (IMA) UK All Companies sector. Over the period the fund fell 2.3% against the sector average decline of 6%.
However, Stuart says this performance could have been better. Because of concerns about what was driving commodity prices, Stuart had a zero weighting to mining companies, a stance he admits was costly to the fund’s performance, as was a lack of exposure to bus companies.
Stuart admits being taken aback by the extent of the rally since March and its cyclical nature.
“Macroeconomics are very hard to forecast,” he says. “So instead of worry about them we instead focus on the business. There is a danger that things are going up too quickly and a real risk of a second bubble emerging within 18 months of the last one.”