Alasdair McKinnon has overhauled the £905m Scottish Investment Trust since taking over last year, dumping popular equity sectors such as healthcare and technology.
Mr McKinnon took over as lead manager last July when John Kennedy departed after 10 years in charge. Since then, he has reduced holdings in healthcare and technology stocks by nearly 3 percentage points each.
According to the latest survey of global fund managers by Bank of America Merrill Lynch (Baml), tech is the most popular sector among investors. Healthcare is in third place.
“What often happens in the stock market is the price gets exacerbated by people chasing a share price. So, while we still like these companies, we think the valuations have gotten ahead of themselves,” said Mr McKinnon.
Companies he has sold out of include US-based biotechnology firm Biogen, which is working on an Alzheimer’s drug, and Hikma Pharmaceuticals, a Middle Eastern company listed in London that sells branded, generic drugs.
Mr McKinnon has been moving money into utilities and consumer goods stocks, buying into United Utilities, the UK’s largest water company. He said: “They have just confirmed that for the next five years they are targeting dividend growth that will at least match retail price inflation. Nothing in life is guaranteed, but they are a pretty safe bet.”
The company is now his fifth-largest holding, making up 2 per cent of his portfolio.
The utilities sector is by far the least popular sector among global fund managers, according to Baml, with a net 37 per cent of survey respondents reporting an underweight position to the sector, compared to a net 46 per cent saying they are overweight tech stocks.
However, the manager has not focused solely on unloved sectors, adding to consumer discretionary stocks such as jewellery manufacturer Pandora. It is now his fourth largest, at 2.2 per cent of the portfolio.
He has also been buying into Japanese companies, with the trust’s allocation jumping to about 7 per cent from about 4 per cent at the beginning of the year. “A lot of Japanese companies are good, but they have been held back because they’ve been unwilling to make tough decisions to get rid of bad parts of their business. Many companies are starting to look more interesting,” he said.
The trust has slightly underperformed its peers in the past five years, according to data from FE Analytics. It has returned 67.4 per cent, while the average IT Global fund has returned 71.7 per cent. However, it has marginally outperformed its sector and benchmark index since Mr McKinnon took over.
