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Felton adjusts focus of M&G capital fund

Mike Felton has finished restructuring M&G’s capital fund after changing 50 per cent of the stockholdings.

Felton, who took over from David Jane seven weeks ago after joining from Isis, says the capital fund is now unashamedly a clone of the UK prime fund he ran at Isis, which was ranked in the first quartile over three years, outperforming the FTSE All Share index by 17.5 per cent and the UK all companies sector average by 17.3 per cent.

He believes the fund can deliver the performance of a focus fund but with lower volatility than the FTSE All Share through active management and risk awareness.

He says: “All too often, focus funds are dismissed as too risky to be a core element of a client’s portfolio. But this was not our experience at Isis and it will not be our experience here.”

Felton has removed about 25 stocks from the fund and added 13 others, managing to maintain top-decile performance during the restructuring process.

The fund is now even more overweight in resources, as Felton feels the equation looks positive on the supply and demand side. He is also optimistic on minerals and oil stocks, agreeing with analysts’ predictions of a sustained oil price rise.

Felton is confident that market uncertainties since March 2003 will continue to provide him with good opportunities as a stockpicker. He feels that valuations are polarised but that this is going to reverse soon.

“Companies that have invested for growth have been given precious little credit for doing so. Companies that have played to the market’s whim and handed back lots of cash to investors have been valued highly. But the market is tipping,” he says.

Felton cites the example of HBOS, whose share price rose dramatically after it did a share buyback at the end of 2004. Meanwhile, RBS has stuck to its guns and pursued an acquisition and growth strategy, generating 15 per cent dividend growth for 12 years, but is undervalued, according to Felton.

He says: “I believe that the stockmarket is here to support businesses and not just to generate cash for the investors. Last year saw so many buybacks and special dividends that the stockmarket actually shrank for the first time in years. We are coming into the next year from an extreme situation.”

On his departure from Isis after 15 years, Felton says he leaves behind some very good friends.

Moving to M&G was a big decision but he has enjoyed his first seven weeks. He says: “I have the freedom to deploy my edge on just one fund and can benefit from a rich resource of research here. I have got the fund as I want it now. If it goes wrong, it is my fault.”

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