Green targets FTSE 100 shares

Trevor Green has stepped out from the shadows of his previous colleague Bill Mott at Credit Suisse but is faced with turning around one of the worst-performing funds in the UK All Companies sector, the £173.1m Dresdner RCM UK Growth Oeic.

Green, who joined Dresdner in February this year, has now restructured the portfolio, focusing on fundamentals and selling out of the 'hope' stocks in which the fund was heavily weighted.

The fund was ranked 299 out of 316 and gave a negative return of 8.3% over the three months to 10 June 2002 compared with a sector average of -4.2% on a bid-to-bid basis.

Over the year to date the fund performed -28.7% against a sector average of -18.6%, on an offer-to-bid basis and ranked 282 out of 291. Green, who also manages the Dresdner UK Mid Cap fund, said investors need to give him time for his stock picks to come through. 'Over time things will come through, the mid cap fund has already turned around and hopefully we will start to see the growth fund do the same,' he said.

Did you implement significant changes when you took over the UK Growth fund?

We've done virtually all the changes we have wanted to but it has taken a couple of months.

The market going steadily down hasn't helped. One of the key things was the fund was very aggressively orientated, for example in terms of a very high weighting in biotechs. We had to move away from what I call hope stocks to more reality stocks and get back to those companies with track records and real earnings.

There were also some sector anomalies in terms of zero weightings in quite large sectors. There was no weighting in food producing, healthcare, beverages and virtually no general retailing. We've kept the beverage weighting light, food producing has moved from nothing up to 3%, healthcare has gone overweight to the benchmark and general retail is still underweight but not as much as it was.

Have you made other structural changes?

The growth fund had about 45 stocks when I arrived but I feel more comfortable with around 65 so the number of holdings went up. In terms of the weighting between FTSE and mid-cap that didn't change much. The fund was already overweight mid-cap with about 20% of the fund in those stocks, which is consistent with what I did at Credit Suisse.

You mentioned altering sector positions. Could you expand on that?

I moved the oil sector to quite heavily overweight to reflect the earnings momentum there. The fund was overweight pharmaceuticals mainly because of the biotech weighting, which has been removed, so we have reduced the pharmaceutical weighting and increased the health care weighting.

We had no weighting in BT and we have now gone overweight. We reduced a heavy weighting in MM 02 and Vodafone to neutral.

Finally in banks we have gone neutral weighting on the sector, but very underweight Far Eastern banks, we have no exposure to Standard Chartered and are underweight HSBC so to keep neutral on the sector we are overweight UK constituents, in particular RBS.

Where are you looking for and finding growth opportunities?

I am looking at companies in any sector that can grow earnings faster than inflation or the market. Hopefully those companies reinvest the growing earnings back into the business in order to compound the growth rate of the company.

Pricing power is paramount in a low inflation, low growth market.

Rather than look at utilities as defensive plays with high yields, I look at them rather as companies in monopolistic situations. I like the pure UK ones like Scottish and Southern ' that's a big weighting in the fund. It's not doing big expansion like Scottish Power in the US, it is pure utility with good pricing power and a conservative business model.

Another example is Rexam, packaging and bottling, there are very few market participants, they've already got one pricing increase through at the beginning of this year and potentially we'll get another this year.