QUALIPORT
Britain's Top Superfunds

By Maynard Paton (TMFMayn)
January 15, 2004

January's edition of Money Management contained a superb analysis on managed funds. To cut a long statistical story short, the magazine used performance data from the last fifteen years to reveal Britain's 'superfunds'. The funds were ranked on their consistency to out-perform, rather than on absolute returns.

Money Management deemed five funds as superfunds and details of four of them are listed below. For active stock pickers, the real interest with the superfunds concerns the shares they hold. What can be learnt from their top ten holdings?

(The fifth superfund is run by St James's Place. Sadly, St James's has yet to get to grips with the online revolution and fails to provide any fund details on its website. So it gets no free publicity.)

Superfund 1: Fidelity Special Situations

Manager (start date): Anthony Bolton (December 1979)
Five-year return:     +118%
Size:                 £2.7b (14/01/2004)

Top ten holdings (31/08/2003):

Superfund 2: Invesco Perpetual UK Growth

Manager (start date): Ed Burke (May 2002)
Five-year return:     +36.0%
Size:                 £713m (28/11/2003)

Strategy: "The majority of the portfolio is invested in attractively valued companies with secure earnings growth prospects and good dividend yields. This portion of the portfolio is primarily invested in GARP (growth at a reasonable price) stocks. Another key theme is small and mid-cap stocks with high levels of free cash flow, which enables them to reinvest in their businesses or to pay high levels of dividend. We also focus on certain 'special situation' investments."

Top ten holdings (28/11/2003):

Superfund 3: Newton Income

Manager (start date): Glenn Pratt (December 2003)
Five-year return:     +9.4%
Size:                 £951m (30/11/2003)

Holdings (30/11/2003):

Superfund 4: Schroder UK Equity

Manager (start date): Christopher Metcalfe (October 2003)
Five-year return:     +7.3%
Size:                 £657m (28/11/2003)

Strategy: "To achieve consistent, relatively low-risk, capital and income growth by investing in UK equities. The Fund aims to invest in good quality companies with strong profit growth prospects - but only if their share valuation can be justified by these prospects. We define 'good quality' as companies with for example, a proven track record, strong management and a clear business strategy. As a result, a significant number of companies held in the portfolio are household names."

Holdings (28/11/2003):

Observations

A few observations:

1. Anthony Bolton is by far Britain's premier fund manger. His tenure at the Fidelity Special Situations fund started in 1979 and he's pretty much been top quartile material ever since. Notably, his portfolio is extremely diversified -- he had 184 different shares at the last count -- which runs contrary to conventional market-beating wisdom.

2. A top-ten representative in the Invesco, Newton and Schroder portfolios, BT (LSE: BT.A) is the superfunds' favourite share (the telecom group could well be a quality blue chip, too). Nine other companies were a top-ten holding in two different superfunds.

3. Superfunds prefer big British blue chips. The seven non-FTSE 100 shares (from a total of 29) held were Amlin (Lloyds insurance), SSL International (healthcare products), Celltech (pharmaceuticals), Carlton Communications (commercial television), Wilson Bowden (house building), Aggregate Industries (aggregates and building materials) and Orkla (Norwegian consumer goods and chemicals). It therefore appears you can invest in the FTSE dictators and regularly beat the index.

4. All four funds carry minimal cash balances.

5. Three of the four managers have been running their fund for less than two years. They're following in some impressive footsteps and present an age-old dilemma for clients -- can the new hotshots replicate their predecessors?

More: Money Management | Fidelity | Invesco Perpetual | Newton | Schroders | Trustnet

The author owns shares in GlaxoSmithKline.