Unlike in IMA UK Equity Income, the largest UK companies tend to be the most held in IMA UK All Companies – a possible side effect of the amount of tracker funds in the sector.
With the exception of SAB Miller, the 10 biggest constituents of the index are all among the most held in funds’ top-10s.
However, some of the smaller companies in the FTSE are among the 20 most-held.
Favourite UK growth stocks
| Stock | Number of funds |
|---|---|
| Royal Dutch Shell | 167 |
| HSBC | 149 |
| GlaxoSmithKline | 145 |
| BP | 145 |
| Rio Tinto | 132 |
| Vodafone | 122 |
| British American Tobacco | 99 |
| Diageo | 84 |
| BHP Biliiton | 83 |
| BG Group | 67 |
| Unilever | 47 |
| AstraZeneca | 45 |
| BT | 40 |
| Lloyds | 37 |
| Reed Eslvier | 29 |
| Imperial Tobacco | 25 |
| Compass | 22 |
| Legal & General | 22 |
| ITV | 19 |
| Xstrata | 17 |
Source: FE Analytics
ITV is a good example of this.
Its market cap of £4bn means it is the 72nd largest company in the UK; however it is the 19th most popular holding in the sector.
FE Alpha Manager Nigel Thomas’ AXA Framlington UK Select Opportunities and 18 other funds in the sector count it as a top-10 holding.
Graham Toone, head of research at AFH Wealth Management, thinks a number of these managers may look to sell ITV soon.
"It is a stock we used to have a large holding in, but we have sold out and made a profit because we think its price has gone too far."
"The stock had a very good run but we thought it was time to take money off the table," he said.
Two other popular stocks that are significant overweights in the sector are Legal & General and Reed Elsevier, which rank 45th and 46th respectively in the FTSE 100 market capitalisation.
Of companies outside the 10 largest, BG is the most popular with managers.
All in all, 67 out of a possible 287 funds in the IMA UK All Companies sector count the British multi-national oil and gas company as a top-10 holding. However, with a market capitalisation of £37bn, it is only the 13th-largest company in the index.
FE data shows that FE Alpha Managers Julian Fosh and Anthony Cross count BG Group as a top-10 holding in their Liontrust Special Situations and Liontrust UK Growth funds – both of which have five FE Crowns.
Performance of stock over 10yrs
Source: FE Analytics
According to FE Analytics, the company has returned 433.58 per cent over 10 years. However, it has had a more troublesome time recently, losing 20 per cent over a one-year period.
Toone says this stems from poor production numbers.
"BG Group used to be known as the darling company of the stock market," he explained.
"However, it recorded very poor production figures, showing a drop of around 20 per cent. Ever since then, the share price has been struggling. We have seen the head of the company say he has a master plan for 2013, now the market is just waiting as to what will happen."
"There is a lot of uncertainty around it, but it would be harsh to call it a recovery stock because that implies the business was struggling. The real reason for its underperformance is that its P/E ratio got very high, which made a lot of investors uncertain."
Another popular off-benchmark holding is the Anglo-Dutch consumer staple company Unilever.
Unilever is the 17th-largest company in the UK but 47 funds in the sector count it as a top-10 holding. One of the highest-profile names to do so is FE Alpha Manager Nick Train, whose five crown-rated CF Lindsell Train UK Equity fund has a 9.8 weighting to the company.
Fellow FE Alpha Manager John Wood’s JOHCM UK Opportunities fund also counts Unilever as a top-10 holding, with a 3 per cent position.
While Toone himself is not a massive fan of Unilever, he says he can understand why it is a popular holding.
"Unilever is very interesting because although it sits in the consumer staple area, you would think a big reason why it is held is for its income potential," he said.
"However, its P/E [price/earnings] ratio has gone ballistic recently and the share price went through the roof."
"Growth managers have been buying it as it exports goods to emerging markets and is a quality stock, but I think investors have got too excited over its share price."
"I’m more inclined to back value stocks at the moment," he added.
Lloyds is the second most popular banking stock in the UK, with 37 funds holding it in their top-10.
However, the most popular financial stock is HSBC, which appears in the top-10 of 149 UK All Companies funds. With a £130bn market cap, it is the second-largest company in the country.
Sanjeev Shah’s Fidelity Special Situations' largest holding is HSBC. However Shah – who is a big proponent of the UK financial sector – has 7.2 per cent of his £2.3bn portfolio in Lloyds, which is his second-largest holding.
Lloyds’ track record over five years is poor, which is a feature of most banking stocks. According to FE data, it is down 69.39 per cent over the period.
Performance of stock vs index over 1yr
Source: FE Analytics
However, more recently banks have come back into favour. Investors in Lloyds have seen returns of 47.5 per cent over the last 12 months. Over the same period, the FTSE has returned 10.78 per cent.
As well as being a favourite in the UK Equity Income space, AstraZeneca is also popular with IMA UK All Companies managers. Overall, 45 funds count the pharmaceutical company as a top-10 holding, meaning it is the 12th most popular stock.
SAB Miller is only slightly more popular with UK growth managers than those in IMA UK Equity Income.
The multi-national beverage company is the 8th-largest corporate in the UK, with a market cap of £50bn; however, only four funds count it as a top-10 holding, including Baring UK Growth and L&G Equity.
Toone is not surprised by the lack of interest in the company.
"SAB Miller is a similar story to Unilever in my opinion – I think the valuations have gone too far so I can’t see how investors could be attracted to that stock on any fundamental level," he finished.