S&P assigns "A" Fund Management Rating to New Star UK Special Situations

Standard & Poor’s Fund Services, the leading provider of qualitative fund management ratings, has assigned a "A" Fund Management Rating to New Star UK Special Situations, following a detailed qualitative evaluation of the investment process and management of this fund.

This is a best ideas portfolio, guided partly by economic trends and themes, but run largely to reflect the manager's stock selection skills.

Having taken over this portfolio in May 2003 as his first retail fund management task, James Ridgewell has shown considerable promise as a fund manager with a broadly contrarian approach seeking two key categories of company, each representing around half the portfolio.

His first category, special situations, focuses on unpopular stocks going through change. Purchases are based on recovery potential and the holding period is typically 12/18 months. His second category is undervalued growth stocks: effectively stocks that have been forgotten by the market. Purchases tend to reflect valuation anomalies. Sales follow a multiple re-rating. Holding periods can vary considerably.

The fund's mandate imposes very few restrictions on Ridgewell in terms of sector, style or capitalisation bias. This has allowed him to invest heavily in AIM stocks, which until May 2006 were a key driver in the fund's outperformance.

Relative returns were hit hard in the May downturn. Then just as they began to recover, they were again depressed by the crash in on-line gaming stocks, a sub-sector in which Ridgewell was heavily overweight. Despite these two setbacks, the fund was back on an upward trend by the year-end, reflecting the manager's strong stock selection skills. This bodes well for the future as Ridgewell is unlikely to take such a heavy sub-sector bet again and we feel he has shown sufficient flair for the fund to achieve an A rating.