T Bailey has increased exposure to FTSE 100 stocks within its growth fund of funds to its highest-ever level.
FTSE 100 stocks comprise 62 per cent of the fund’s UK exposure after T Bailey recently added the FTSE top 20 ex miners note, a structured product, to the portfolio. This provides 170 per cent of the growth in an equally weighted basket of the 20 biggest stocks on the FTSE 100, excluding mining stocks. Mining stocks were excluded as the portfolio has sufficient exposure to mining and commodities through the JPM natural resources fund, which has been held in the portfolio for five years.
Until now, T Bailey has favoured the mid and small-cap sectors, remaining overweight in these areas when some fund firms forecast the end of their outperformance in 2005. T Bailey has benefited from further outperformance over the last two years by maintaining its position but it believes bigger companies are now staging a comeback.
Mega-cap stocks have lagged behind the FTSE 250 for the last four years but T Bailey expects FTSE 100 stocks to lead the market over the coming months. In particular, it believes the 20 biggest stocks on the index will outperform. These will hold up better than mid and small-sized companies if markets continue to fall back or benefit from any flight to quality.
Co-fund manager Jason Britton says: “The problem is it is hard to add value consistently at that end of the market, given how efficient the market is at the mega-cap end. Most stockpickers favour fishing among the medium and small companies as more pricing anomalies occur in those waters.
“We have used a structured product to get genuine exposure to mega caps and to further add performance through its upside gearing, with 170 per cent participation.”