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Veitch ramps up concentration as low growth environment prevails

Veitch ramps up concentration as low growth environment prevails

SVM manager Neil Veitch has ramped up the concentration in his UK Opportunities fund by doubling down on top positions, as slow economic growth and low returns prevail.

The £138m vehicle, which Mr Veitch runs with deputy fund manager Craig Jeruzal, has historically had 40 per cent allocated to its top-10 holdings.

However, the prospect of low global growth and returns has led the team to run this at a much higher level, with the weighting standing at around 52 per cent, and a further rise looking likely.

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“We might think of having a top 10 at 55 per cent,” Mr Veitch said. 

“We don’t want to go above that but in a world where there’s going to be relatively low growth, those stocks that can deliver growth and are trading at a reasonable price are worth buying.”

Software business Micro Focus, the fund’s top holding at the end of September, represented 7.1 per cent with the second largest, Imperial Brands, at 6.8 per cent, according to the asset manager’s literature. 

While the managers are prepared to take stock-specific risk, they are focused on a balance of sectors within the portfolio.

In a similar vein, a decision by the team to put cash to work in the wake of the vote for Brexit has seen them attempt to “tread a fine line” between cheaper, domestic-facing stocks and internationally oriented names.

This approach saw Mr Veitch initiate a position in London-based property investment company British Land, in part because of faith in the continuing commercial success of the UK capital. “We bought that on the day when the property funds started gating,” he said. 

“The advantages of London in terms of infrastructure and time zone, institutions, culture and property laws that the UK has built up over hundreds of years are advantages that are not easily eroded.”

The team also bought Melrose, which focuses on acquiring, improving and selling engineering firms.

“It’s an engineering business but it operates a private equity-type model in the public arena,” Mr Veitch said. 

“The management are quite brutal. They acquire underperforming engineering businesses, improve margins and sell them on. They’re not shy about returning cash to investors through special dividends.”

Beyond this, the team used the Brexit vote fallout to initiate positions in infrastructure names CRH and Balfour Beatty in the expectation of possible fiscal stimulus in the UK and around the world, as well as buying Diageo and BAE Systems.

Another post-referendum shift in the portfolio has come as the team finally capitulated on a long-standing position in HSBC.

“Mea culpa – we decided to sell out of HSBC after being HSBC bulls for three or four years,” Mr Veitch said. 

“We are the first to admit we don’t get everything right. Almost immediately after we sold out, it started to appreciate strongly.”

The team had held onto HSBC for a number of years, citing reasons including the hope that rising interest rates could benefit the bank.