Five-year anniversary for New Star UK Alpha Fund marked by top decile performance

The New Star UK Alpha Fund, managed by Tim Steer, reached its fifth anniversary on 12 November 2006, delivering a 91.7% return against a rise of 51.6% for the FTSE All-Share Total Return Index and a rise of 49.3% for the UK All Companies sector over the same period. This places the fund in the top 10% of funds in the IMA UK All Companies sector for its performance since launch.*

Tim has demonstrated a high level of consistency on a discrete year basis and has delivered top quartile performance in both bull and bear market conditions†.

At the beginning of November 2006, the fund had reached £340m in size.

Tim Steer, manager of the New Star UK Alpha Fund, says: “There are very few fund managers who originally worked on the sell-side as a stockbroker; I believe this experience allowed me to hone my analytical skills when considering the risks and rewards of a stock. Prior to becoming a broker and then a fund manager I was a chartered accountant and I try and practise financial discipline by investing in companies with good earnings visibility and strong cash flows. This has helped the fund avoid problem companies with questionable accounting practices.

“The fund is quite concentrated. This means individual stock decisions can have a big impact on the portfolio. I therefore try to identify themes such as the growth of outsourcing or the big increases in defence technology spending to narrow the stock selection into areas where there is distinct revenue growth.

“The portfolio has therefore evolved over time. Several years ago I had a big weighting in niche retailers, which were benefiting from strong house price growth feeding through to high street sales. Today, retailers represent a small proportion of the fund and companies involved with support services or defence have risen to prominence.

“Throughout the five years I have been managing the fund I have invested a lot of my fund in medium-sized companies. While I am prepared to hold large companies when they demonstrate good value I continue to believe that the FTSE 250 index remains a good incubator for fast-growing, but well-capitalised companies.”

*Source: Lipper, mid-mid, total return, net income reinvested, Sterling, to 10.11.06.

†Source: Lipper, mid-mid, total return, net income reinvested, Sterling, 12.11.01 to 12.03.03 (lowest point of the FTSE 100 index) and 12.03.03 to 10.11.06.

Sector comment Building and construction
Tim is overweight in building and construction because the housing and construction market remains robust. He holds a number of housebuilders, including Bellway and Bovis Homes, and construction materials groups, such as SIG, the insulation firm, Wolseley, the plumbing supplies group, and Marshalls, the paving company.

Outsourcing
The fund has a big position in companies involved in outsourcing as the government and private companies seek to utilise outside suppliers to deliver efficiencies. The fund holds Serco, which is involved in support services, and Alfred McAlpine, which performs facilities maintenance and project management for a range of clients spread more or less equally across the public, private and regulated sectors.

Defence and the application of technology
Tim has a heavy weighting in aerospace and defence through stocks such as Rolls-Royce, the aero-engine maker, Smiths Group, a maker of detection equipment used in security screening, and Chemring, which provides missile decoys for the military. The increased spending by governments on defence and national security as well as an increase in air travel is boosting the demand for the products of these companies.

The New Star UK Alpha Fund is a semi-concentrated portfolio that invests in about 60 carefully selected UK stocks.