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Luckraft won&#39t play FTSE with the index

Framlington star fund manager George Luckraft believes that stockmarkets will grow by between 3 to 4 per cent over the coming months but will continue to favour stockpickers.

Luckraft, manager of the equity income and high-income funds, expects most firms to perform moderately well but suggests the lack of company pricing power will continue for the foreseeable future.

Although running yields have fallen, Luckraft says capital has come back up and points out that most dividend cuts have already come through, with Lloyds TSB likely to be among the stragglers.

He is also optimistic about figures beginning to emerge out of the US. He says: “I will not go defensive. There is increasing evidence that the US economy is picking up, which is also happening in the UK but less so in Europe. Normally, markets are good in the run up to US elections. The economy will do OK but no dramatic growth.”

Luckraft says investors are becoming less cautious, a shift he believes will be rewarded with higher returns. His measured optimism is reflected in his equity income fund, which he finished restructuring at the end of 2002 after his defection from ABN Amro last year. The fund now invests around 42 per cent in small caps, 23 per cent in mid caps and 35 per cent in big companies.

Unsurprisingly, he says the most market inefficiencies are in the small-cap universe, where he sees strong performance continuing. But he is very underweight in large caps, which comprised over half the fund, with 53 per cent in Vodafone and Glaxo, when he took over last September.

This prompts him to proclaim: “My fund looks nothing like an index tracker.”

The equity income fund has grown significantly since he took the helm from £50m to around £110m. Luckraft says he is comfortable with the fund growing in size as long as money continues to trickle rather than pour in.

He says: “The growth has been partly performance but it is mainly steady cash flow. I do not expect it to run away to £500m very quickly. That would be a bit of a problem.”

The equity income fund is up by 13.4 per cent since last September against a 5.79 per cent rise in the All Share index, ranking it sixth out of 78 funds.

Luckraft says he is highly incentivised and confident of continuing such performance over the next 12 months although, as ever, he tempers his words with some caution.

“I am ahead of the FTSE All Share quite considerably and I just hope to continue doing a decent job. Remember, I have a vested interest with my pension.”

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