Ed Legget, manager of the top-performing £586.2m Standard Life UK Equity Unconstrained fund, has upped his stake in banks as he predicted a positive second quarter for UK equities.
Mr Legget, whose fund was the top performer in the IMA universe in 2012 thanks to its high-risk style, said he had been adding money back into Lloyds Banking Group and building a position in Standard Chartered.
In the face of his more bullish outlook, the manager has been amending his positions in Barclays and the taxpayer majority-owned bank Lloyds, following both stocks’ stellar rises in 2012.
He has also more recently been increasing his position in internationally focused Standard Chartered, following the bank’s period of relative underperformance.
“It had been pretty weak year-to-date, but it has a large emerging market consumer franchise across a wide range of countries, which investors are paying huge premiums for elsewhere in the market,” said Mr Legget.
Standard Chartered’s share price has fallen by 12 per cent since hitting its highest level since 2010 in March this year, but it has significantly lagged the meteoric growth of Lloyds, Barclays and Royal Bank of Scotland in the past year.
Investors are often drawn to Standard Chartered because 90 per cent of its income comes from faster-growing economies in Africa, the Middle East and Asia. But more recently concerns about economic growth and its £415m fine from US regulators for breaching sanctions on Iran have dragged on its shares.
However Mr Legget said the market was underestimating the stock’s prospects for growth. He said it had a price-to-earnings ratio of 10 times, which would fall to 9 times next year if earnings estimates were correct and it had grown its dividend by an average of 10 per cent per annum for the past 10 years “through the very worst market crisis for banks”.
Elsewhere, Mr Legget said the chances of the FTSE 100 returning to 6,000 points were much less likely than market commentators, including himself, would have thought even a month ago.
“The market has had quite a lot thrown at it recently and it has shrugged it all off,” said Mr Legget. “Investors still want to buy into the stockmarket and you can clearly see that.”
Optimism about the UK economy has grown in recent weeks as economic data showed some improvement, firstly with the 0.3 per cent growth in the UK’s GDP in the first quarter of 2013, and then with the positive surprise of the country’s manufacturing purchasing managers’ index data last week.
“In the near term there is a reasonable chance that markets could keep on grinding higher,” he said.
Just as in 2012, when the fund saw net outflows in spite of being the best-performing fund in the IMA universe, the Unconstrained fund has suffered slight net outflows so far this year.
Mr Legget said retail flows had been positive but were offset by the withdrawal of a couple of bigger institutional investors.
He admitted investors may have been put off by the fund’s higher price, with an annual management charge on platforms of 1 per cent, and by the fund’s agnostic style, which has led it to be one of the most volatile funds in the IMA universe.
