Insight’s Howarth to up gross exposure as volatility falls

Richard Howarth is poised to increase the gross exposure of the Absolute Insight UK Equity Market Neutral fund following a drop in volatility across markets.

Howarth says the £492m fund would be increasing its gross exposure to between 75% and 100%, from a 60% to 80% range at the beginning of 2011 as fundamentals return to the forefront of investors’ minds and correlations between stocks fall back.

“Normally the correlation between stocks is about 40%-50%, but in the fourth quarter it surged to 80%,” Howarth says.

“Now, with volatility at lower levels and correlations falling significantly, we are more willing to run larger positions within the fund.”

Stocks the team has  been favouring include Hargreaves Lansdown, which recently entered the FTSE 100.

Howarth and co-managers Andrew Cawker and Iain Brown are backing the firm in the expectation it will continue to benefit from increased client numbers after the Retail Distribution Review (RDR).

Howarth says: “We are long Hargreaves in the view the retail market is migrating to larger organisations in an unusual period of high growth, while margins are also extremely high.

“Hargreaves is structurally well placed to take market share from smaller advisers following the RDR.

“The holding is also in line with our strategy for 2011, as we are concentrating on sector winners and companies in niche areas of the economy that are confident about growing regardless of the economic environment.”

Howarth has also bought into Australian group RPS, the engineering consultant.
“We expect the earnings to start moving in the right direction and the market to focus on its non-UK oil and gas businesses.”

The team is also favouring outsourcing giant Capita.  Although the stock has recovered from recent lows, Howarth says it remains undervalued historically.

“When we took a position, it was trading at historic lows as we found the market was being overly negative, so we were contrarian on the stock.

“This largely played out but we have retained our position as we see substantial valuation upside compared to history.”