Mike Felton adopts a contrarian approach with the M&G UK Growth Fund. He seeks unloved companies, which he views as having longer-term potential for improvement. Valuation also forms a key part of his stock selection strategy. While the valuation is important, an investable company must also demonstrate the ability to grow revenues and profits.
This approach is combined with the manager's wider economic views to help drive his investment ideas. For instance, Mike Felton has recently been taking a closer look at the oil & gas sector, where he believes capital expenditure is due to be curtailed. This could result in supply falling, but he anticipates a slow increase in demand over the course of this year. The combination of these factors could push up the oil price.
The depressed oil price has hurt the performance of oil-related holdings in the shorter-term, but the manager has used this weakness as an opportunity to top up positions including BP and Ophir Energy. These companies could benefit from any rise in the oil price.
A position in Kingfisher, the home improvements retailer, was also recently initiated. Mike Felton has previously owned the company, which owns the B&Q and Screwfix chains, and believes that after a period of share price weakness it is attractively valued.
Overall the fund operates a concentrated portfolio which allows each holding to have a significant impact on performance but this is a higher-risk strategy. The fund also has the flexibility to use derivatives which involves additional risk.
Our view on this fund
Mike Felton targets incremental periods of small success, rather than huge outperformance at all times. In our view, he has been successful in delivering this type of performance and he has outperformed the wider UK market over the long term. Remember past performance is not a guide to future returns.
We view the fund as a good growth choice for long-term exposure to large and medium-sized UK companies. That said, we currently have higher levels of conviction in other managers in this sector and the fund does not feature on the Wealth 150 list of our favourite funds across the major sectors.