2015 is underway and the UK economy is in a good place, according to Neil Hermon and James Ross, managers of the Henderson UK Alpha Fund. Inflation is low, helped by the decline in oil and food prices, wages are growing, and the outlook for economic growth looks encouraging.
Nevertheless, the managers are aware the economy will have to overcome an uncertain general election in May, while also grappling with the pressures of a sluggish Eurozone. On the whole they describe themselves as cautiously optimistic about the prospects for the UK economy in 2015.
This concentrated fund currently has a bias towards the consumer services industry. Neil Hermon and James Ross believe the sector will benefit from increased spending from UK consumers on the back of the aforementioned oil and food price falls. Current holdings include Inchcape, the automotive distributor and retailer, and restaurant and pub operator, Restaurant Group.
Playtech is also held, which has a dominant position in the supply of gaming software to online gambling companies. According to the managers, the company has a high quality and predictable revenue stream, with a strong balance sheet. It also currently trades at an attractive valuation.
Around one fifth of the fund is invested in the industrials sector. The managers favour this sector as it provides exposure to a broad range of markets. For example, they feel Balfour Beatty provides exposure to a turnaround story in UK construction, Ashtead gives exposure to the ongoing US economic recovery, and Howden Joinery could benefit from a strong UK housing market.
On the other hand, the managers have considerably lower exposure to the utilities, consumer goods and healthcare sectors compared with its benchmark. In their view, these sectors are not attractively-valued, while they are less likely to be beneficiaries of an economic recovery in the UK compared with more economically-sensitive areas.
Our view on this fund
Neil Hermon and James Ross took over management of the fund in February 2013 following several years of disappointing performance under the previous manager. The fund has since been restructured - it is now a much higher-quality portfolio, with a focus on companies with a strong business model, good quality management, strong balance sheets, healthy cash flows and positive earnings momentum.
So far, the changes appear to have done the trick in turning performance around, although there are no guarantees this will continue. Over this time the fund has grown by 30.1% against 26.7% for the sector average and 20.7% for the FTSE All Share Index. Our analysis suggests good stock selection has helped drive returns.
|Annual percentage growth|
| Mar 10 -
| Mar 11 -
| Mar 12 -
| Mar 13 -
| Mar 14 -
|Henderson UK Alpha||25.5%||-7.6%||-9.3%||19.8%||8.0%|
|IA UK All Companies||18.5%||0.8%||13.9%||17.7%||5.4%|
|FTSE All Share||14.8%||3.4%||13.3%||11.2%||7.2%|
Past performance is not a guide to future returns. Source: Lipper IM* to 02/03/2015
At present we will not be adding this fund to the Wealth 150 list of our favourite funds across the major sectors. James Ross has limited fund management experience, and while he is supported by Neil Hermon who has 25 years of fund management experience, his background is in managing higher risk smaller companies and he has limited experience when it comes to investing in larger companies. We will continue to monitor the fund's performance and will inform investors if our views change.
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