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This year&#39s model

Recent market events not- withstanding, there are excellent offshore funds

available for exposure to UK stocks, many of which closely mirror their UK

unit trust counterparts.

The last few months have been difficult for UK managers because investors

have been looking elsewhere for the growth stories. The UK market is

vulnerable during periods when emerging growth is fashionable as the bigger

indices are particularly poorly represented in these sectors.

The whole shift in sentiment in favour of the new economy model has been

difficult for UK managers. A shortage of stock in these sectors has

exaggerated many of the price movements – up in the case of

technology-related issues, down in the case of most other sectors.

Managers focused on the large-cap indices have struggled to keep pace with

moves at the smaller end, hence the marked outperformance of UK small-cap

funds from the likes of Mercury, Gartmore and ABN Amro in the past six


Favoured UK funds within our rating and recommendation service include a

mixture of styles. The only one growth fund which has failed to live up to

its name is the Perpet- ual UK growth fund. We have been forced to

downgrade this fund because it does not do what it says on the tin.

The fund&#39s manager, Stephen Whittaker, has been a victim of the

valuation-driven argument he has proposed for the last two years and which

explains the underperformance of the fund. Many of his arguments are the

same as those used by Jonathon Simon at Fleming on the management of the

FFF Fleming American fund.

Those we still like include the HSBC UK equity fund and UK opportunities

fund. The UK equity fund focuses on the FTSE 350 and will tend to make use

of pooled veh- icles where a small-cap exposure is required.

Fund manager Tim Russell targets a 1.5 per cent outperformance of the

benchmark FTSE All-Share index on a rolling annual basis with a tracking

error of between 2.5 per cent and 4 per cent.

Russell argues that a number of managers&#39 strategies are flawed by their

tracking error which is often too high and can offset some of the positive

decisions relating to overall stock selection.

The manager&#39s investment strategy is one of flexibility which adapts to

suit the business cycle.

Peter Harnett is manager of the UK opportunities fund. His fund provides

investors with an enhanced performance version UK equity fund but gives a

higher tracking error and as such a higher level of volatility.

The strategic management of the fund in essence follows the policy set for

the conventional vehicle but has a tighter portfolio focus and trades more


Gartmore made a strategic decision to form a dedicated large-cap team

following the recruitment of Tim Gregory, who manages the Gartmore UK


The team uses the investment process created by the European team as a

blueprint. About a year ago, the UK and continental European research teams

were combined to provide a centre of excellence for the creation of

proprietary research on stocks.

Gregory has the freedom to move up and down the capitalisation scale but

will typically hold a portfolio which is balanced between FTSE 100 and Mid

250 stocks.

The 20 biggest stocks will always be represented in the portfolio with a

maximum position of 5 per cent. There will a maximum 50 per cent +/- active

bet in any of the major economic sectors compared with the benchmark

although this moves to 150 per cent for the smaller sectors.

Peter Davies, manager of the Mercury UK fund, adopts a global perspective

to the management of the portfolio, arguing that trends and valuations,

particularly in the US, are vital to UK stocks.

About 50 per cent of the portfolio will be derived from the core stock

list constructed by the UK specialist team, with 30 per cent drawn from

team- driven investment themes and the balance from Davies&#39 favoured stock

list, which often has a small-cap bias.

Frank Manduca, manager of the Gartmore UK smaller companies fund, is

offering clients the best possible risk/return profile within the asset

class. The theoretical universe of stocks is represented by the bottom 10th

of the All- Share index but in reality all small-cap stocks are considered

potential opportunities.

He is willing to buy Aim stocks but exposure will tend to be restricted to

5 per cent of assets – he does not buy unlisteds. Stock identification is

achieved through a well dev- eloped network of brokers.

The portfolio will feature 60 holdings drawn from a core universe of

about 200 stocks. Around 30 of these positions are considered core and are

held on a medium-term view.

The balance is invested in a range of companies offering unique

opportunities. The maximum exposure to any one stock is 4 per cent.

The uncertainty surrounding the ongoing management of the Jupiter income

unit trust seems to have been settled with the announcement that William

Littlewood will not be returning to run the fund following his sabbatical.

This is significant only in that the fund itself is very much the

reflection of the person running it. At the retail end of Jupiter&#39s

activities, the managers are given a great deal of freedom to manage their

portfolios, with ideas formed from intellectual and often acerbic debates

between team members.

Each manager will pursue their own style of investment management within a

broad macroeconomic consensus. The current manager of the fund, Anthony

Nutt, should be given time to prove himself.

Forsyth Partners includes the fund within its formal recommendations with

the proviso that it adopts a total return philosophy and must be considered

as such when being incorporated into client portfolios which diverge

significantly from the index.


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