Abbey sheds banks and builders to beat sector drop

Richard Moore, the manager of the 1.2 billion Abbey UK Growth fund, has adopted a defensive position since taking over the fund in July.

His stated aim was to reduce the number of holdings to 60-80 from the 270 it had when he took over the portfolio (Fund Strategy, July 16, page eight).

“When we did the transition the market was changing and there was a lot of risk rising in the market,” says Moore. “We repositioned the fund in a more defensive-type strategy.

“There is a higher weighting in the FTSE 100 than there was before. The stocks are more dependable [and] there are fewer cyclical companies.”

Moore reduced the fund’s exposure to financials, retailers and housebuilders and increased exposure to oil, telecoms and food and beverage producers.

He says: “We thought there was risk rising in the banks, particularly in mortgage banks. We thought the subprime issues were going to bite at some point. We [also] sold all our UK housebuilder stocks. They are not particularly liquid and we thought there was a risk of a downturn in the UK.

“We have a largely overweight position in telecoms, particularly Vodafone. Vodafone is our largest overweight relative to benchmark. Other sectors we have increased are oils and mining, particularly the smaller oil stocks. Mining has performed really well. Telecoms, mining and oil have added value.”

Despite his aversion to banks over the past three months, Moore says he is increasing his exposure to the sector because some valuations look cheap. “Our biggest underweight was in the Royal Bank of Scotland (RBS),” he says. “We’ve brought that up to neutral now. We are not buying into the mortgage banks yet, we are not that brave. We have not seen the full impact. But some of the bigger global banks, like RBS, have got too cheap. It’s a valuation issue.”

The fund was previously run on a sub-advisory basis by Barclays Global Investors, JPMorgan Asset Management and State Street Global Advisors. It was brought back in-house so ideas and market views could be applied with more conviction, says Moore. There are now 60 stocks in the portfolio. Moore, who joined Abbey in April, was previously head of UK large-cap desk at Old Mutual Asset Management.

Over the past three months the return of UK Growth fund fell 1% compared with the average IMA UK All Companies sector drop of 2.85%.