M&W fund cuts UK holdings due to high public debt

By Tricia Wright

LONDON (Reuters) - McInroy & Wood's global small-cap fund is cutting UK share holdings due to concerns about the scale of the country's public borrowing, and is loading up on cyclical stocks except financials and property.

Tim Wood, who is one of the directors responsible for running McInroy & Wood's Global Smaller Companies Fund, said he was more positive on the United States than on Europe, as he believes the U.S. is better equipped to extract itself from the current economic quagmire.

Wood said it was difficult to come up with a coherent strategy on continental Europe, given it comprises such diverse entities, but argued it was probably still in a better position than the UK.

"We have actually been moving quite a lot of money out of the UK, because we think the UK's got very specific problems, particularly relating to the government debt, even relative to other countries," said Wood.

"America is much more capable of rectifying its fiscal and monetary deficits than the UK," he said.

Last month, credit ratings agency Standard & Poor's lowered its outlook on Britain to negative, putting at risk the UK's AAA credit rating, citing government debt that would be hard to rein in, and political uncertainty about the policy response with an election looming.

McInroy & Wood's Global Smaller Companies Fund, which has a size of 16 million pounds, has outperformed the Lipper Global Equity Global Small & Mid Cap sector by 4.6 percent for the year ended May.

Wood said the fund's move from the UK involved, for example, selling van hire company Northgate (NTG.L), and running down high sterling cash positions which had been held during equity market falls.

CYCLICALS

Among cyclical stocks Wood holds in the U.S. are Baldor Electric (BEZ.N), whose industrial-sized efficient electric motors are favoured by factory owners mindful of steep energy bills, and Anixter International (AXE.N), a distributor of cable and wire products.

In Europe, Dutch group Royal Boskalis Westminster (BOSN.AS), which dredges harbours and waterways, is among the companies Wood likes, along with Swiss logistics group Kuehne & Nagel International (KNIN.VX).

"In fact, the economic downturn has benefited (Boskalis) in the long term because their weaker competitors go out of business, and Boskalis get the opportunity to buy distressed assets," the fund manager said.

In the UK, Wood favours engineer Rotork (ROR.L), which makes valve control systems for the oil, gas and water industries.

Wood explained that Rotork's water industry focus has given it a defensive element against a backdrop of dwindling oil and gas spend, and said it had good recurring revenue through replacement components.

He added that, as an exporter from the UK, Rotork benefited from the weakness of sterling in the run up to Christmas.