M&G Investments’ £661.1m UK Growth fund manager Mike Felton has invested in a number of off-benchmark companies as the search for value in the UK market becomes more difficult.
Mr Felton has added positions in Carphone Warehouse and jewellery giant Signet, both of which are listed in the UK, but are not members of the FTSE 350 index.
“With the market where it is, we are struggling to find a great deal of value – certainly what we would regard as real value,” the manager said.
“The retail sector generally has performed very well as has the leisure sector. Now we have to look a little bit more ‘leftfield’ for value.”
Signet – formerly known as Ratner Group until 1993 – owns major jewellery brands in the US, but has little exposure to the UK.
In 2013, its share price has risen 47 per cent, helped by a $350m (£217.3m) share buyback programme announced in June. Carphone Warehouse, meanwhile, has gained 31.2 per cent this year.
Elsewhere in the fund, Mr Felton said he had been adding to mining companies and oil and gas firms. Oil giant BP was the UK Growth fund’s second-biggest holding at the end of September, while Rio Tinto is also in the fund’s top 10 positions.
Mr Felton said Rio was “well placed” going into the end of the year with positive announcements expected regarding its iron ore business, in spite of the iron ore price continuing to trade significantly above the consensus forecast.
“The recent positive upgrade to Rio was the first in a long time and it was on the back of a good copper price, which shows Rio is not just about iron ore,” Mr Felton said.
“It is increasing its focus on shareholder returns and cutting costs, which bodes well for the valuation.
“It is also starting from a position where it looks very cheap.”
The manager added that Rio Tinto and BHP Billiton –another FTSE 100 listed miner held in the UK Growth fund – were both seeking to make their existing assets “work a bit harder”.
“BHP’s new chief executive has said he has no intention of opening any new mines,” Mr Felton said.
The manager has also added a position in oil and gas exploration company Cairn Energy.
Although the exploration sector is volatile and subject to big moves in investor sentiment, Mr Felton said sentiment was currently improving towards the sector.
He pointed out that Cairn was trading at an attractive valuation, which “effectively values the exploration business for free”, when its cash holdings and stakes in other companies are taken into account.
Mr Felton’s UK Select fund was merged into the UK Growth fund in March this year, after the portfolios had become similar in structure.
Since the start of March to November 15, the fund ranked in the second quartile of the IMA UK All Companies sector with a 12.8 per cent return, according to FE Analytics.