The Henderson independent growth portfolio has sold out of Ashton Bradbury’s Old Mutual UK select mid-cap fund, replacing it with Invesco Perpetual UK aggressive, a mixed-cap fund.
Although mid caps have outperformed large caps in recent years, Henderson says dividend yields on the mega-caps — in particular the 10 largest FTSE 100 stocks — are at their highest level for years and the yield gap between mega caps and mid caps is also at a record level.
Henderson says such levels are unsustainable in the long term, but the turning point is uncertain while mergers and acquisition activity is strong.
The Invesco Perpetual fund has a bias towards the mega caps, with some exposure to mid and small caps. Henderson says bigger companies are quality businesses on the whole and are attractive on a valuation basis. It also points out that corporate activity, which pushes up share prices, is moving up the market cap scale. This is reflected in the recent speculation over possible takeovers of retail chains Boots and Sainsbury’s.
Henderson co-fund manager Katy Gladstone says: “We have been gradually moving into large caps over the last year, but we are taking into consideration the fact that we don’t know when the value differential will come. We are being pragmatic by using a mixed-cap fund.
“The Invesco fund has a skilled manager in Ed Burke, who also has a lot of exposure to financials, which we are positive on.”