The Close special situations fund aims for capital growth by exploiting significant changes in smaller UK companies. It will comprise 40-60 of the best stock ideas from the fund manager, Justin Jordan.
Jordan has eight years experience in vesting in UK smaller companies. He joined the UK smaller company Aim team at Close Brothers in 1998 then moved to Old Mutual to co-mange a UK smaller company unit trust. He then managed an Aim venture capital trust at Octopus Asset Management before rejoining Close Brothers in 2004 to manage various UK smaller company and VCT funds.
Jordans new fund for Close Fund Management will be benchmarked against the Hoare Govett Smaller Companies (excluding Investment Companies) index. The majority of the stocks in the portfolio will fully listed companies with some Aim companies.
Close Fund Management believes UK smaller companies is an under researched sector with stronger growth potential than larger companies.
When selecting stocks and deciding on asset allocation, Jordan will focus on key themes. He is keen to invest in sectors that are trading strongly and benefiting from structural growth, but will avoid sectors that are struggling with difficult trading conditions.
The fund is likely to be overweight in construction-related support services, an area that is benefiting from increased government spending. Examples of potential holdings are building companies Kier, Morgan Sindall and Carillion. General support services also look good to Jordan, as it benefits from the trend towards outsourcing in areas such as recruitment and property maintenance. Small engineering companies are benefiting from global economic growth, especially companies with exposure to the Asia Pacific region. Similarly, the high oil price has led to more exploration so the fund will gain exposure through companies such as Expro and Hunting.
However, Jordan is likely to go underweight in the leisure sector and retail sector. Low consumer confidence and rising costs are affecting both sectors, with the retail sector also having to deal with competition from Internet retailers.
Small-cap stocks outperformed the main UK equity market in 2005, with the Hoare Govett index, which measures the performance of the bottom 10 per cent of companies – beat the FTSE All Share index by 6.6 per cent.
Global stockmarkets have performed strongly this year and there is a concern that UK smaller companies may weaken, with new flotations providing some indigestion as they come to the market at the same time. However, any weakness in the market could provide the buying opportunities this fund is looking for.