The ballooning of household debt and the deterioration in British government finances are likely to contribute to a long period of sub-par growth, says Leigh Harrison, manager of the 100m Credit Suisse Alpha Income fund.Harrison, who also manages the group’s 1.14bn Income and 371m Monthly Income funds, is consequently adopting a cautious approach to portfolio management. He says: “Macroeconomic growth is clearly slowing in the UK. We are looking to invest in businesses with secular rather than cyclical growth – those companies making long-term structural changes. Growth businesses are valued low compared with value stocks, and growth stocks are set to revalue.” However, Harrison is relatively relaxed about the economic outlook, and says that corporate activity will provide opportunities for fund managers to add value. Harrison made a number of changes to the Alpha Income portfolio’s strategy in summer 2004, to address concerns regarding performance. While he was happy with the overall returns achieved by the fund, it was not outperforming the main Income fund, despite its greater focus on capital growth. “We were taking bigger stock bets, but not delivering more than the other portfolios. We weren’t able to back our conviction to a great enough extent,” he explains. As a result, the portfolio now holds close to 35 stocks rather than the previous 40-45 holdings. The largest bets now form a significant part of the portfolio, with 48% of assets held in the top 10 stocks at May 31. The fund focuses on total returns with high-conviction ideas: “We take bigger bets in the Alpha fund,” says Harrison. The volatility of the fund has gone up, but not dramatically, he adds. There is a large element of commonality between the stocks held in the three funds. Five companies appear in all top 10 holdings, with GlaxoSmithKline and Shell Transport & Trading making up the largest two positions in all three portfolios. Harrison is currently bullish on the consumer staples, pharmaceuticals, tobacco and healthcare sectors, saying: “Bond proxies will continue to perform well.” “People are ignoring the warning signs: the high oil price is a massive drain on the economy. Things get more difficult from here,” he argues.