If you don’t have the adequate time, resources, expertise or experience to analyse a company and its valuation, backing it is nothing more than a speculative punt in my opinion.But something that investment director at Rowan Dartington Tim Cockerill said to me recently made me change my mind.
Cockerill says it’s beneficial to take stock ideas from star managers, who are in general agreement that a company is a good investment. Since I prefer to leave the analysis to the professionals, this method of adding value through stock picking sits well with me, and I’ve decided to a very small portion of my portfolio to direct equities as a result.
Here, we look at some of the high-conviction bets shared by a number of star managers.
Large caps
While there are a lot of investment opportunities outside the UK, accessing them is pricy and when you’re already making a bold move by investing in a single company, keeping the costs low can really help your overall returns.
For this reason, I’m limiting myself to UK equities.
Starting with large caps, I checked the most held stocks with FE Alpha Managers operating in the IMA UK Equity Income and IMA UK All Companies sector.
Twenty-one top-rated managers run funds in the former sector, while 45 run funds in the latter, making a grand total of 69.
The stock everybody seems to hold is healthcare giant GlaxoSmithKline.
It is a top-10 holding for 38 UK growth and UK income funds run by an FE Alpha Manager – more than half of the total number.
It’s worth pointing out that the multinational pharmaceutical company is among the 10 biggest companies in the UK and has a healthy yield of more than 5 per cent, so it’s no surprise that it’s a major fixture in the sector.That said, it’s an overweight position with some of the most respected fund managers in the business, including Neil Woodford (pictured), Adrian Frost, Mark Barnett and Leigh Harrison.
Barnett’s £13.2bn Invesco Perpetual High Income fund has a 7.2 per cent weighting in the company, while Woodford’s new CF Woodford Equity Income fund has a 7.11 per cent position.
While it’s principally an income play, the strong yield, relatively attractive valuation and decent growth potential means that it’s also a popular stock with funds in the IMA UK All Companies sector.
Some of the biggest names in fund management are backing Glaxo in their top-10 hodlings, including Nigel Thomas in his AXA Framlington UK Select UK Opportunities fund, JO Hambro’s John Wood in his JOHCM UK Opportunities fund and Julian Fosh and Anthony Cross in their leading Liontrust Special Situations fund.
GlaxoSmithKline is a buy for the vast majority of brokers out there, including The Share Centre, which said in a recent note: “The defensive nature of the sector and the stock, and the competitive yields paid to investors make this a core holding for many portfolios.”
“We continue with our ‘buy’ recommendation on this stock for stability in a portfolio and should appeal to low risk and balanced investors looking for income.”
Performance of stocks and index over 10yrs
Source: FE Analytics
Looking at some of the smaller constituents in the FTSE 100, AstraZeneca, BT, Imperial Tobacco and Centrica are all very popular choices with UK Equity Income managers.
None are among the top-10 biggest companies in the UK, but all are top-10 holdings with at least six funds run by FE Alpha Managers.
Imperial Tobacco, for example, is the 24th biggest company in the UK, but is a top-10 holding with 16 UK Equity Income funds run by FE Alpha Managers, including ones run by Woodford, Harrison and Troy’s Francis Brooke.
Astra, which is the 13th largest company in the UK, is even more popular.
It is a top-10 holding for a third of FE Alpha Manager-run funds in the IMA UK All Companies and IMA UK Equity Income sectors, including those run by Woodford and Barnett (pictured).
The stock has had a stellar run of late, but the FE Alpha Manager duo of Stephen Bailey and Jan Luthman recently explained why they still think it’s undervalued.On the growth side, the banks have proven increasingly popular of late.
Lloyds Banking Group is among the most popular with star UK managers, appearing in five top-10s.
FE Alpha Manager Alex Wright holds both Lloyds and Barclays in his Fidelity Special Sits fund.
As well as being popular with UK Equity Income managers, BT is also a staple with UK growth managers, appearing in the top-10 of 17 FE Alpha Manager-led funds, including Liontrust Macro UK Growth, Artemis Income and Invesco Perpetual UK Aggressive.
ITV is another interesting choice. It’s Thomas’ largest holding in UK Select Opps, and also a big position in Threadneedle UK Equity Income (ex LV), Thesis TM Cartesian UK Opportunities and Thesis TM Cartesian UK Enhanced Alpha.
The media company has a market cap of £7.1bn, putting it in the bottom half of the FTSE 100.
Thomas' AXA Framlington UK Mid Cap fund also includes industrial equipment rental company Ashtead Group in its top-10, alongside seven other UK equity funds run by star managers. Thomas is deputy manager on the portfolio, following Chris St John's lead.
Rio Tinto is the polar opposite to GlaxoSmithKline, in that traditionally it has been viewed as a growth stock.
However, it has become increasingly popular with UK Equity Income managers since it’s started paying an income.
Majedie UK Income and Henderson UK Equity Income & Growth are major positions with 11 UK equity funds with at least one FE Alpha Manager at the helm.
Small and mid caps
It’s a lot harder to find a general consensus among small cap managers, as their universe is so much broader.
There are, however, a handful of growth companies that are big hits with the most experienced managers out there.
FTSE AIM-listed stock Smart Metering Systems is one such example.
The electricity, gas and water metering specialist is a top-10 holding in four FE Alpha Manager-led funds, including Old Mutual UK Smaller Companies and Schroder UK Dynamic Smaller Companies.
Daniel Nickols and Paul Marriage are among the highest rated small cap managers in the UK.
In spite of a difficult couple of months, the company has been a sterling performer since it came to market in mid-2011, returning in excess 430 per cent.
Performance of stock since July 2011
Source: FE Analytics
Smart Metering Systems has a market cap of just £336m.
Engineering and manufacturing holding company Senior is another high-conviction company with star managers.
The FTSE 250 stock, which has a market cap of just over £1bn, is held by five FE Alpha Manager-led funds across the UK equity sectors.
Again, Thomas and St John’s Mid Cap fund is among these five, as well as FE Alpha Manager Richard Plackett’s BlackRock UK Special Sits fund and James Henderson’s Henderson UK Equity Income & Growth fund.
None of the funds that hold Senior are overtly small or even mid-cap focused, making the positions even higher in conviction.
Outsourcing specialist Regenersis is another popular choice, appearing in three star managers’ portfolios.
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