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Window shopping

Ihave never been a fan of insurance companies’ banks’ and building societies’ funds. For too long, many have got away with mediocre returns, often because big salesforces distributed the funds without due regard to performance.

However, some companies have realised how important it is for their unit trusts to be a real shop window for the group. One company is Standard Life Investments.

It now boasts a strong line up, not only in the traditional areas of fixed interest but in UK equities too. Just look at Harry Nimmo’s performance on UK Smaller Companies, Mark Niznik’s on UK Opportunities and Karen Robertson’s numbers on UK Equity High Income to see what has been achieved. Undoubtedly, some of the success is due to the appointment of David Cummins.

Standard Life’s latest UK offering is called Standard Life Unconstrained. The fund was launched over a year ago but was only available as an institutional share class. Under relative newcomer Wesley McCoy, the fund has risen by more than 30 per cent in its first year. It is now being opened to the wider retail market and is well worth a look.

Each fund manager at Standard Life is an analyst and is responsible for at least one sector. McCoy’s sector is utilities. Ideas are generated through company contacts and McCoy alone held over 250 company meetings last year. The “matrix”, an in-house proprietary system which looks into 12 factors influencing share prices, is also used to generate ideas, allowing fund managers to make direct comparisons between different companies.

Standard Life also has a “winners list”- its 20 best ideas in the large-cap area, excluding the top 20 companies in the UK. These are looked at separately. The winners list also has a liquidity threshold. The winners list could be viewed as the shared intellect of the whole team. If you wanted to encapsulate McCoy’s philosophy, he looks for companies with a positive change which is not understood by the market.

He is a strong believer in the matrix and winners list. Some 30 per cent of his portfolio is in the winners list but he also holds companies within the top 20 stocks of the FTSE, such as HSBC and Anglo American. If the matrix system confirms his view of a company, this usually proves to be a good buy. He will occasionally bet against the matrix but it makes him think carefully before making that bet.

The final part of the process is ideas generated by the small-cap team. Although they don’t use the matrix or winners list, this team is highly experienced and have excellent investment performance.

The Unconstrained Fund is a best-ideas fund and there is scant regard for sector exposure and the market index in general. The portfolio is considered against an equally weighted FTSE 350 index. The conviction-led positions mean that at purchase the minimum holding is 1 per cent. For a mid-conviction idea the holding would be about 2 per cent, and high-conviction ideas would represent about 3.5 per cent. The only other parameter is the 5-and-40 rule. For example, stocks that represent more than 5 per cent of an index are only able to make up a maximum of 40 per cent of the portfolio when combined. Few of the stocks are more than 3 per cent weighted. Liquidity is also taken into account. The maximum holding of any Aim stock is 2 per cent and a high regard is placed on the ability to trade out of a position quickly.

Even though McCoy is one of the youngest members of the team, he does seem to have the right qualities to make this portfolio work. He appears focused on getting the best ideas out of all the individuals across the whole UK desk and is not afraid to put his own best ideas in. An example last year was MFI. This is the only stock that he held within the portfolio that at the point of purchase was ranked a sell by the analysts. He felt there was an irrational fear over the business and took a position. This was rewarded in due course with the analysts taking a more positive view on the stock and making it a buy recommendation.

While this may be a new fund to most, the investment process at Standard Life Investments is well entrenched and I see no reason for waiting three years for performance figures before buying a fund such as this. I would not be surprised if Standard Life decided to cap the fund at a later date. My advice is to hurry up and take a look at it before it’s too late.


Find the right mix

Helen Pow asks if it is time for investors to move away from diversifying their portfolios

Out with a bang

So farewell then, Gerrard. As you read this I will have moved on to whatever pastures await me in my semi-retirement. I say semi because I know what tasks might be found for me at home if I do not profess to a continuing interest in the investment world.


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