Standard Life Investments’ decision to roll out a UK Equity Recovery fund last year proved to be almost perfect, with the vehicle launching on almost the exact point of the FTSE All Share’s six-year low.
Unveiled on 6 March 2009, SLI UK Equity Recovery has strongly outperformed the majority of its peer group since inception, ranking third out of 306 UK All Companies sector funds over the period with a 109% rise.
SLI’s UK equity team as a whole has performed well during the rally, with its UK Equity Unconstrained fund ranked first and UK Equity High Alpha in fourth.
UK Equity Recovery manager David Cumming, who is also head of UK equities at SLI, says the group decided to launch the fund after identifying the “significant valuation anomalies” that opened up during the market downturn.
“It was clear the market was being driven by fear, rather than fundamentals,” he says.
“While market sentiment was very negative, credit markets were gradually opening up, economic indicators were starting to turn and interest rate cuts were supporting consumer discretionary spending.
“Corporates were also successfully repairing balance sheets through rights issues. All of these factors suggested to us the economy was stabilising, and many shares would deliver material upside over the next few years as global economies and stock markets recovered.”
Cumming says the fund launched with a bias towards economically sensitive sector – such as general retailers, property, media, banks and capital goods.
“There was also a focus on companies who were set to benefit from competitors going bust and/or those with self help potential, therefore offering near-term profit protection and further longer term upside,” the manager says.
“For example, Mondi, the paper and packaging company, was a large initial holding. As one of the lowest cost producers globally, it had an opportunity to take market share and put prices up as others were forced to close factories.
“DSGI, the electrical retailer, was also a key overweight. It was not only a play on a more resilient consumer but also on the success of a credible management turnaround strategy which the market did not believe in.”
While the fund and the overall markets have bounced back significantly over the past 12 months, Cumming expects further upside.
