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Old Mutual UK Dynamic Equity - a flexible, UK growth fund

Kate Marshall | Mon 11 April 2016

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

Key Points

  • We believe Luke Kerr and the UK equities team at Old Mutual are of a high calibre
  • The manager retains a flexible strategy, with the ability to profit from both rising and falling share prices
  • A bias towards domestically-orientated companies and avoiding commodity-related firms has benefited recent performance

Our view on this fund

We hold Old Mutual's UK equity team in high regard for their high-quality research and stock picking ability. The Old Mutual UK Dynamic Equity Fund blends together their best ideas into a concentrated portfolio - having relatively few positions means each one can make a real difference to performance, although it is a higher-risk approach.

Luke Kerr is the fund's lead manager. He has the flexibility to invest in companies of all sizes, although he has a tendency to focus on higher-risk small and medium-sized businesses which have greater long-term growth prospects than their larger counterparts. The manager's track record is excellent - since launch in July 2009, the fund has grown by 236.8%* compared with 181.7% for the benchmark, the FTSE 250 Index, and 102% for the average fund in the sector. Please remember past performance is not a guide to future returns.

Annual percentage growth
April 11 -
April 12
April 12 -
April 13
April 13 -
April 14
April 14 -
April 15
April 15 -
April 16
FTSE 250 Mid 3.4% 24.7% 19.2% 6.4% 1.4%
IA UK All Companies 0.2% 17.3% 14.4% 5.3% -3.6%
Old Mutual UK Dynamic Equity 8.4% 25.6% 27% 6.7% 9.2%

Source: Lipper IM to *01/04/2016. Past performance is not a guide to future returns.

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Luke Kerr retains a highly-flexible strategy and has the ability to profit from both rising and falling share prices. As such, the fund is more aggressive in nature compared with some others in the IA UK All Companies sector. The fund has the flexibility to use derivatives which, if used, adds risk. We view the fund as an excellent choice for investors seeking exposure to this more adventurous area of the UK market. It currently features on the Wealth 150 list of our favourite funds across the major sectors.

Portfolio review

The past year has been particularly strong for the fund, outperforming its benchmark by 7.8%* and the sector average by 12.8%, although this should not be seen as an indicator of future returns. At a sector level, the fund has benefited from avoiding resources-related sectors, which have experienced a torrid time over the period. A bias towards industries reliant on consumer discretionary spending, such as house builders and retailers, has also helped. At an individual stock level, some of the strongest contributors to performance include online payments company, Paysafe, and Fever Tree, a producer of premium drink mixers.

More recently, Luke Kerr has reduced the fund's bias towards UK domestic, economically-sensitive businesses through the sale of holdings such as Howdens, Greggs, Paddy Power, Betfair and Marshalls. The outlook for UK domestic businesses is not as strong as it was a year ago, in the manager's view. The new national living wage will apply cost pressure on these firms, while he also expects consumers to reduce the amount they spend in order to bolster their savings.

Overall, the fund remains positioned to take advantage of three main themes, as outlined below.

Theme Explanation Current holdings
Structural growth Companies sustainably delivering premium levels of growth irrespective of the economic cycle Just Eat, Paysafe, Fever Tree
Strong cash flow Facilitates growth through acquisition activity and/or enhancing income to shareholders by returning cash Card Factory, DCC
UK-centric, economically-sensitive businesses Stand to benefit from an improving UK economy (although exposure to this category has recently moderated) Barratt Developments, Taylor Wimpey, Morgan Sindal

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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