A portfolio should be a collection of the manager (or managers) best ideas but when the story changes it needs to be dealt with accordingly, says Miton Asset Management’s Andrew Jackson. 
The FE Alpha Manager, who oversees the four FE Crown-rated LF Miton UK Value Opportunities fund, said that this has been particularly appropriate in the UK, where stocks have been the “utter pariah” of global investors.
But, there seems to be less caution to investing in the UK than there has been for much of the period since the Brexit vote in 2016, he noted, meaning that the share prices of some stocks are beginning to move around quite a lot.
“I think the UK has been the utter pariah in fund manager terms and literally bottom of the pile but I do detect a slight willingness to look at the country a bit more,” he said.
However, just because a stock is cheap does not necessarily mean that it is a buying opportunity, as he explained in a recent article on FE Trustnet.
Therefore, the manager said that every stock needs to be sat on a manager’s ‘buy list’.
“If you have something in your portfolio you do not consider to be a ‘buy’ because it doesn’t offer value then why is it in the portfolio? It is by definition either fully or overpriced,” he said.
Below he talks through one new stock that has been added to his portfolio, one that remains on the ‘buy list’ and two that have dropped off.
GlaxoSmithKline
First up is pharmaceutical heavyweight GlaxoSmithKline, which has had a rollercoaster journey over the past three years.
Performance of stock over 3yrs
Source: FE Analytics
Indeed, as the above chart shows, the stock has gained 25.31 per cent but saw a precipitous fall from its peak in June 2017 to its trough in March 2018 of 25.29 per cent.
It is the most recent sizeable addition to the £429m portfolio in 2018 and is a true turnaround story for the manager.
“I added GlaxoSmithKline when it had a number of strategic options and challenges, realistically it seemed unlikely that it would be able to pull off all that it wanted to do,” he said.
Indeed, the firm was at one time tabling offers for large portions of US peer Pfizer and European rival Novartis.
In the end, the firm walked away from the Pfizer deal, choosing instead to go ahead with the Novartis bid.
Jackson said: “It didn’t feel as though they were going to be able to do both and they rationed down, bought one and walked away from the other so that was good.”
However, there were further concerns, particularly surrounding the core pharmaceutical compounds business, although he noted that his has since been stabilised.
“They have taken on some people with very good CVs to rationalise into the drug discovery program – which does not look too bad,” he said.
“There are some pretty early-stage drugs but if you can do a good job of rationalising what you have got in front of you then it could perhaps start to reengage with traditional pharmaceutical investors.”
The big draw to the company at this stage however is the dividend, which the manager described as “juicy”, even though the company has only committed to it for a year.
“I think they would be truly foolish to cut the dividend – that would be wrong,” he said.
ITV
Next up is broadcaster ITV, which Jackson said is a direct play on the domestic UK recovery.
“One area of interest for me is I think there has got to be good value in certain UK-facing names,” he explained. “The employment figures are excellent, the wage figures are sort of encouraging and the inflation numbers are lower – that has got to look better and useful.
“One way I am [getting domestic exposure] is I am sticking by my position in ITV for example which is [a play] on UK consumer spend but I am looking forward to hearing more about the new strategy there with the new chef executive who is looking over that.”
Jackson said there is also a compelling valuation argument for the company.
Performance of stock over 5yrs
Source: FE Analytics
Indeed, while over the past five years the stock is up 5.96 per cent, as the chart shows, since the EU referendum result it is down 15 per cent and is 29.92 per cent lower than its peak in 2015.
“It is on 10x earnings and delivering to a mass advertising audience and is tapped into the UK consumer. Plus, it is a producer of international programmes so it seems a fair bargain to strike,” Jackson said.
IQE and Lloyds Bank
However, there are two stocks that Jackson has sold down more recently – Lloyds Bank and semiconductor manufacturer IQE.
Starting with Lloyds, the bank has been in the doldrums since the financial crisis and is down 15.74 per cent over the past decade, as the below chat shows.
Performance of stock over 10yrs
Source: FE Analytics
However, it has outperformed rivals such as Barclays and Royal Bank of Scotland over this time and is now on an uncompetitive valuation compared to its peers, Jackson said.
“It is a well-run bank and it is the number one domestic bank – although it is only domestic, but those qualities are well-known and it trades at the top end of the pack as a premium-rated bank in the UK context,” he said.
“In business terms it is fine, but in investment potential terms we just decided there was less to go for; so I was willing to pare back that position to try and ensure that the investment potential in the fund is maximised.
“That is the key – what is the investment potential and it just felt like there was a cheaper alternative out there which was Barclays.”
As for IQE, the firm has become widely popular among investors, being run up significantly over the course of the last year.
Despite falling 36.46 per cent since its peak in November 2017, the stock has gained 399.11 per cent over the past three years.
“It is in a growth market with some quite high expectations around that and it is a classic case of a stock being completely off the radar with apathetic coverage of it, to being quite on radar with a lot of people covering it,” the manager said.
“[Additionally], sadly, the chief financial officer [Phillip Rasmussen] who was a very good communicator with the City was killed over Easter.
“He was a numbers man who learnt the technology rather than a technology man who happened to speak numbers and I think that he will be a big loss.”