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Go to work on an ego

The line-up of fund managers for Skandia’s UK best ideas fund is now unveiled and it is time to see whether this galaxy of stars can shine as brightly as their awesome reputations suggest

Skandia launched its global best ideas fund in June, giving 10 fund managers the freedom to manage their highest conviction ideas in segregated accounts. The beauty of this arrangement is that because all 10 of them are doing the same thing, the individual constraints on portfolio construction are mostly gone. Within their own account, they can put significantly more in their favourite stocks than is normally allowed.

Skandia’s idea, hatched by chief investment officer Alan Durrant and sales and marketing director Spike Hughes, has really the caught the imagination of the investing public and the fund has already attracted over 150m. Most important, it has also risen by 10 per cent.

It is perhaps not surprising therefore to see Skandia launching a pure UK version of the fund. It uses the five fund managers from the UK portion of global best ideas but five new ones are added.

You cannot deny it is an awesome line-up. The new five are Richard Buxton of Schroders, Tony Nutt of Jupiter, Ashton Bradbury of Old Mutual, Carl Stick of Rathbones and George Luckraft of Axa Framlington. They join Stephen Whittaker of New Star, Ashley Willing of Gartmore, Richard Plackett of Merrill Lynch, Roger Whiteoak of Axa Framlington and Mark Tyndall of Artemis.

The idea is to blend the different styles of each manager. Space precludes me from going into too much detail but it is obvious that Whiteoak will be looking at micro-caps and the Alternative Investment Market while Tyndall will use Artemis’s SmartGarp system to look at large caps.

Skandia, in an attempt to avoid the fund becoming totally dominated by small and mid-caps, has given the biggest weighting of 15 per cent to Tyndall while Whiteoak, Luckraft and Stick have just 7 per cent each. The overall effect should mean that the FTSE 100 will have around a 44 per cent weighting, the FTSE 250 35 per cent, small caps 6 per cent and Aim 12 per cent. The fund managers can hold up to 20 per cent in cash but at present this is likely to be under 3 per cent, suggesting that the fund managers are extremely confident. Managers can hold between 5 and 25 per cent in any single stock, meaning they will have to have a genuinely high conviction in the ideas as each portfolio will be compared against the FTSE All Share index.

As with all the funds that Skandia manages, a very high level of scrutiny will be applied to the best ideas funds. Within global best ideas, there is complete transparency on the holdings as Skandia has a real-time look into the fund via its custodian, the Bank of New York. All trades that are placed by the manager go through the custodian and therefore it knows at any point exactly what is held in the fund by whom and in what percentage. This enables everyone to know whether they are close to any of the risk parameters.

For example, the overall stock limit for the fund is 8 per cent although there are no constraints within sectors. At this stage, Skandia would actually write to managers. Skandia uses a daily monitoring sheet which will show, for example, the top 10 holdings, cash balance and common stocks. This snapshot should help with the fund’s smooth running.

Superficially, it is easy to suggest that this is just a marketing gimmick but the truth of the matter is that the fund managers themselves see it as quite the opposite. They recognise the huge potential of investing solely in their best ideas. All the fund managers are in the Wealth 150, our list of favourite funds. What is more, the fund undoubtedly panders to fund managers’ egos. I gather that they have been queuing up in the hope of being chosen.

The quality of the fund managers is not in doubt so let us hope the blend works well and that Skandia’s UK best ideas fund is up with the winners in years to come. In my view, the only real danger is a mega-cap rally like we saw in the late 1990s. However, this is a risk to many multi-cap funds already in the sector. For me, the fund is a definite buy.

Mark Dampier is head of research at Hargreaves Lansdown

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