Neptune UK Mid Cap Fund - portfolio review
Kate Marshall | Tue 12 May 2015
The links in this article will take you to Hargreaves Lansdown’s main website for more information. Please be aware that if you wish to join any of the benefits in your company Plan you must return to this website to apply.
Mark Martin has been at the helm of the Neptune UK Mid Cap Fund, which primarily focuses on medium-sized companies, since its launch in December 2008. It is a concentrated portfolio of 36 holdings at present, meaning each can have a significant impact on returns, although it does increase the level of risk.
Portfolio Construction
The fund is focused towards undervalued and cash-generative sectors and companies, which have the support of long-term growth drivers in the manager's view.
In constructing the portfolio, Mark Martin invests in three themes. By having at least 20% of the portfolio invested in each of the three themes of economic recovery, structural growth and corporate turnarounds, the manager believes this could help the fund perform well across the business cycle, as well as lowering its volatility compared with the wider market. The fund also has the flexibility to invest in higher-risk smaller companies should the manager see fit.
| Theme | Current weight | Explanation | Stock example |
|---|---|---|---|
| Structural growth | 39.8% | These companies could benefit from long-term end-market growth drivers, resulting in sustainable profit margins and earnings growth. | Genus operates in the animal genetics arena with the aim of improving the productivity of livestock herds. The manager expects the company to benefit from growing protein demand in emerging markets. |
| Corporate turnaround | 29.4% | Companies with a poor performance history, but with a change of management or new strategic plan. These businesses are often undervalued with significant potential upside from self-help initiatives. | Carpetright is currently the fund's largest holding. The company recently appointed a new management team and is cutting back its number of sites, which should reduce its fixed costs. It is also introducing new customer initiatives, including an interest-free credit offering. |
| Economic recovery | 30.2% | These businesses could benefit from shorter-term economic tailwinds, while their earnings tend to be more sensitive to fluctuations in the economic cycle. | Tullett Prebon, a diversified interdealer broker, could see its transaction volumes improve as interest rates start to rise in the US and UK, as well as from increasing levels of bond issuance in Europe (which could result from the introduction of the ECB's bond-buying programmes). |
Outlook
Mark Martin believes sterling weakness could benefit UK companies with strong dollar earnings and lead to an increase in merger and acquisition (M&A) activity, with UK firms becoming attractive targets to US buyers. According to the manager, the healthcare sector is a major beneficiary of a strong US dollar, and also enjoyed M&A activity last year. He expects UK-listed healthcare stocks to perform well throughout the remainder of 2015 and the fund maintains a 25% weighting in the sector. In addition to Genus, the fund also has holdings in Vectura and Dechra Pharmaceuticals.
Performance
While the fund struggled in its first few years, longer-term performance has been strong. Since launch the fund has delivered growth of 311.2%* against 257.1% for the FTSE 250 Mid (ex. IT) Index, although please remember past performance is not a guide to future returns.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| May 10 -
May 11 |
May 11 -
May 12 |
May 12 -
May 13 |
May 13 -
May 14 |
May 14 -
May 15 | |
| Neptune UK Mid Cap Fund | 18.7 | 14.0% | 33.7% | 19.3% | 18.4% |
| FTSE 250 Mid (ex. IT) | 21.6% | -0.7% | 27.3% | 17.6% | 12.9% |
Past performance is not a guide to future returns. Source: Lipper IM* to 01/05/2015
The fund has also been successful in achieving its objective of exhibiting less volatility than the index and its medium-sized company peers. Furthermore, our analysis shows the fund has tended to hold up relatively well in a falling market, although it has tended to underperform the index in a rapidly rising market.
Our view on this fund
Mark Martin's track record has so far been encouraging. He has delivered a strong performance, which can largely be attributed to stock selection according to our analysis, while at the same time limiting the volatility of the portfolio. Overall we view this as an attractive profile.
The fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors. We currently favour other managers with a focus on medium-sized companies, who have longer track records and the support of more established UK teams. That said, we will continue to monitor the fund and inform investors if our views change.
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.