Axa Investment Managers’ George Luckraft, who has been suffering a multi-year period of underperformance, has benefited from a rally in small-sized companies in recent weeks.
Mr Luckraft had a 22.1 per cent weighting in FTSE Small Cap index shares and 21.3 per cent in micro-sized AIM-listed companies, according to data correct to August 30.
These have helped his £136.8m Axa Framlington Equity Income fund to enjoy top-quartile returns of 10 per cent in the past six months, compared to a sector average of 7.6 per cent, according to figures from the group.
However, its five-year returns are still in the doldrums – it gained a bottom-quartile 26.3 per cent compared with a sector average gain of 47.6 per cent.
In the past three years, though, the fund’s returns have ranked it in the third quartile.
“Investors seem to be pretty neutral on the fund. It’s just one of those things. Having had a really tough time, it will take more than one month of outperformance for people to return with interest in the fund,” Mr Luckraft said.
Mr Luckraft said performance on some stocks had been so strong he was now selling out of them.
“Cineworld has been very strong, but I have been selling that a bit because it is getting expensive, while Conviviality Retail went to a 50 per cent premium so I have been taking a lot of profit from that,” he said.
The manager added that the main driver of the outperformance of his smaller companies is that UK economic data is surprising to the upside, banks are starting to lend and house prices are rising, which is convincing more investors to back domestic UK business, and he thinks that this could continue.
“I do get the impression that there is more momentum to the upside on the UK economy than people seem to think,” he said.
The manager also has a 37.6 per cent weighting in giant-sized companies listed in the FTSE 100 index, including oil giants Shell and BP.
The manager said the stocks were priced at good value because they did not participate in the rally that drove other defensive bond proxies earlier this year.
However, he said that he had recently moved to an underweight position in the tobacco sector compared to the index because of concerns about the impact of electronic-cigarettes, known as e-cigarettes.
Mr Luckraft said: “I have reduced the fund’s weighting to tobacco companies because I have concerns about the substitution of e-cigarettes and the impact that will have on profits.
“The government will not want to tax e-cigarettes, it will actively encourage them.
“There will be more competition from other firms that do not have a presence in the conventional cigarette market now,” he said.
The shares that George Luckraft is banking on
Royal Dutch Shell: Shell is a regular in UK equity income funds due to its high and stable dividend and reliable profits. However, the stock hasn’t performed as most bond proxies have due to concerns around energy prices. At a low valuation, Mr Luckraft sees value in the stock.
Cineworld: The share price has exploded in recent years, but took a hit in August when the Competition Commission ruled the firm may have to close some cinemas. The stock was looking expensive, so Mr Luckraft has been taking profits.
Pendragon: Another stock from which Mr Luckraft has been taking profits following exceptional share price performance. The firm has benefited from the upturn in the UK domestic economy that has led to a sustained resurgence in car sales.
