UK fund firm New Star backs tobacco, aerospace
LONDON, Sept 26 (Reuters) - UK fund firm New Star's Managed Distribution Fund has introduced new sector overweights in tobacco, utilities, transport, and aerospace and defence stocks.
Trevor Green, who has managed the equity portion of the 383.76 million pound ($705.3 million) bond and equity fund since joining in June, said he was emphasising the security of dividends rather than absolute yield.
Looking for stocks with potential future dividend growth, he cited British American Tobacco (BATS.L) and Imperial Tobacco (IMT.L), and aerospace stock Cobham (COB.L) as promising picks.
"Cobham has recently moved into the FTSE 100 .FTSE, doesn't have any civil exposure, it has a healthy balance sheet and the dividend is growing a lot faster than the market," he said.
The performance of the Managed Distribution Fund has been poor since mid-2007, due to a large exposure to financials and a decision to stay away from mining stocks in the first half of this year.
According to Lipper data, it is down 17.5 percent over the 12 months to June 30, and has lagged its peers in the Investment Management Association Cautious Managed sector.
To address this, Green said he had cut the financials exposure and had tilted the portfolio towards companies with a high degree of earnings certainty.
"I am trying to gain performance from stock rather than sector selection," he said.
"Financials was the key area -- we've seen much better stability in the performance [since] because that is the high beta area of the market at the moment."
HIGH YIELD
James Gledhill, who manages the fixed-income portion of the fund, said he was maintaining a reasonable exposure to high yield at 55 percent, with the rest in investment grade, but the latter had been holed by the amount of bank debt weighing on the segment.
"This is a very strange market. Usually in a cyclical downturn you would expect the pressure to be on the high-yield market, and for the investment grade market to be the safe haven," he said. "But last week, when we saw all the dramatic events going on, the high yield market performed a lot better than investment grade."
In a normal credit downturn, he said, investors tend to want to move up the credit spectrum, but over 50 percent of the investment-grade market is bank debt.
"And that's exactly what is causing the carnage at the moment. There have been greater falls in the bank debt than there have been in the high-yield market, by some distance," he said. (Editing by Hans Peters)
