Manager focus: Graham Ashby

Graham Ashby, the manager of the Credit Suisse income range, has been adding to his covered call positions in anticipation of a pause in the market rally.

He has five call options on the Income fund, to which he adds when the upside on the share price is not expected to be significant.

“When the market is very low we take a step back, but when the market is rallying we put a bit more on,” he says.

As examples, he gives RSA, whose share price climbed after strong results, and Standard Chartered, the only British bank he owns, which he says has bounced quite hard.

“We are prepared to sell them at prices above where they are now and lock in some of the premium.”

Holding the options has been one of the main contributors to yield on the fund, which is 6.27% compared with the FTSE All-Share yield of 5.17%, according to yesterday’s Financial Times.

Income was also boosted by investments in corporate bonds and avoiding companies that have seen cuts in dividends.

Although the fund’s financials weighting is nearly the same as the index, each composition is different. The fund is
underweight banks and holds nothing in life assurance firms, but Ashby has held some specialist financial companies in the general insurance and Lloyd’s insurance sectors.

RSA and Amlin are held for their strong balance sheets and capital discipline.

“We have feared anything with leverage in financials but these have stayed pretty clean in terms of avoiding toxic assets. There has been some 10% dividend growth from these when many others have been cutting back.”

He also likes companies operating in niche sectors of engineering. He says Ultra Electronics is the “best aerospace and defence business” and also likes Rotork and Spirax Sarco.

“There are a lot of engineering companies in this country which have had to specialise in order to survive the past 20 years. This is what these companies have been doing,” he says.

Ashby has been selective in consumer stocks, owning Reckitt Benckiser. Unlike Unilever, says Ashby, the firm has focused on a limited number of brands and this has been reflected in returns.

He also has Tesco: “This company is very exposed to the economy, but when things get tough, it squeezes its supplier. It is in a competitive industry but in a leading position.”

Compass Group has been one of the best performing stocks on the fund. Ashby describes it as a turnaround situation, which was poorly managed before being taken over by a new team a few years ago. The new management addressed problems and got rid of some “problematic contracts”.

With hindsight, Ashby says that he sold Glaxo too early and held on to AstraZeneca when he perhaps should have held “a bit of both”.

In terms of the general outlook, he says that equity valuations are at attractive levels not seen before, and the flurry of investors moving into corporate bonds is encouraging.

“Lots of people are piling in, and in itself it is improving companies’ ability to re-finance. It is oiling the financial markets and it is encouraging for economic and equity markets,” Ashby says.


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