A high weighting to banks and cyclical stocks has led Richard Buxton’s £1.04 billion Schroder UK Alpha Plus fund to rise some 30.6% over the month to April 3, according to the group. Over the same period, the average fund in the Investment Management Association (IMA) UK All Companies sector was up 15.1%.
This stance had previously led to weak performance in the portfolio, but following the start of the market rally in March, performance has jumped as so-called defensive companies have struggled.
“The strong performance over the last month has recouped a lot of the underperformance in the fourth quarter of last year and the start of this year,” says Buxton. However, he admits performance over six months and longer still lags the sector.
According to Morningstar, over the calendar year 2008 the fund fell 36.45%, compared with the IMA UK All Companies sector average fund decline of 31.99%. This ranked it 245th out of 304 funds.
However, as Buxton suggested, the strong performance over the last month has been enough to turn the fund’s return positive since the start of 2009. From the start of the year to April 13, the fund was up 3.32%, compared with the peer group average loss of 5.33%.
“We are not rejoicing yet, and nor are we becoming complacent,” says Buxton. “We are, though, starting to smooth out some of the savage underperformance. I would like to add thanks to all those unitholders who have sweated it out through the difficult period.”
The main question now, says Buxton, is when to trim back the portfolio’s pro-cyclical stance and move into some more defensive names.
“Cyclicals have recently massively outperformed defensives and as a result there are a now a number of attractive stocks appearing in the more stable parts of the market,” he says. Such names, he adds, include GlaxoSmithKline, Imperial Tobacco and Tesco.
“The $64,000 question is the extent to how much these stocks are currently over-owned in other portfolios and when is the time to make the move? At the moment, cyclical valuations are not stretched, and I think the market will continue to rise for them.”
Banks represent 10% of the portfolio’s assets and while they have largely been responsible for the massive monthly gain, Buxton admits some of the holdings, such as Legal & General, have contributed most to longer-term underperformance.
“It’s unsurprising that financials continue to drag on the fund, but the impact is lessening significantly,” he says.