Dalton launches UK focused portfolio

Dalton Strategic Partnership has launched the Melchior UK Opportunities fund. The fund, available since May 11, invests in a focused portfolio of 30-50 companies where a positive change in fundamentals or investor sentiment is expected to drive share prices at least 25% higher, within one to two years.

The fund is managed by Glen Pratt, formerly of Fidelity Investments and Newton. It was seeded with $20m (10.5m) at launch and was 85% invested last week. Pratt has allocated 50% of the portfolio to large-cap stocks, 20% to mid caps and 30% to small caps, with no exposure to mining and an overweight position in technology. Stocks now in the portfolio include HSBC and WPP, a global advertising agency.

The fund invests in three types of company experiencing change. First is turnaround situations, which are defined as firms whose cashflows are depressed but are expected to improve. Second it invests in unrecognised growth situations – that is, companies whose future cashflow growth is not yet recognised. Finally, the fund looks for valuation anomalies – firms that are intrinsically undervalued.

Pratt applies quantitative filters to identify any stock between 25m and 100bn that can generate the required return. From the initial list, he selects companies where the catalyst for an increase in the share price is imminent – for example, changes in broker sentiment, product news flow and business or debt restructuring.

The minimum investment for the fund is 10,000 for retail clients. The annual management fee is 2.15% and an initial charge of 5% is payable, although IFAs can discount this to zero. The fund is benchmarked against the FTSE 100 and DSP expects to cap inflows when assets are between $500m and $750m.

As reported in Fund Strategy on January 9, Pratt recently joined DSP from Newton as head of the UK equity team. He previously ran Newton’s 1.1bn Income and 71m Growth funds.

DSP announced last week that it has attracted more than $1bn in new business this year, with inflows into its range of long-only, hedge fund and global balanced portfolios. Funds under management have reached $4.2bn.