New man Newman at top of Special Situations tables

With the spotlight once again trained on 'special situations' funds, one of the newer names in this specialist fund class has clearly pitched his performance flag at the summit of the performance tables.

The F&C's Special Situations Fund, managed by Luke Newman, has delivered stellar returns since its deliberately low-profile 'soft launch' on 30 December 2005 shortly after Newman and four colleagues arrived at F&C from rival group DWS Investments. However, F&C is set to turn up the volume with the fund ranked as the best performing retail fund in the IMA All Companies sector carrying the "special situations" title, since its launch.

Since its inception the fund has delivered a return of 38.9% compared to UK All Companies sector average of 23.4%, landing a place in the top decile of all funds in the sector.

However, according to Newman, although there are some 13 funds in the IMA UK All Companies sector which explicitly tag themselves as "special situations" funds, the definition of this type of strategy is not well understood.

"Whilst recovery and restructuring opportunities are synonymous with special situations funds, this is but one of several areas which I look to invest in. Certainly, there have been great opportunities in this space over the past four years with a string of distressed corporates putting new management teams in place to restructure and resurrect their fortunes, but in my view 'special situations' encompasses a much wider breadth of opportunity," said Newman.

"I have targeted young companies in immature industries with the ability to exploit their respective niches and grow profitably into the future. For example, brewer C& C Group, makers of Magners Premium Cider, managed to successfully launch in England following a decade of success in the Irish market. I have also identified opportunities in more established companies with exceptional track records of value creation on the proviso that they pass my strict valuation criteria."

Newman added that in contrast to much of his peer group, he extols the virtue of holding a concentrated portfolio of high conviction investments in his fund.

"At the current 42 holdings, the fund not only benefits in the practical sense by ensuring I am able to regularly meet with company management and monitor the companies I invest in but perhaps more importantly, I believe that if I am confident enough to invest in a company then it should be in a meaningful way," said Newman.

"I am more comfortable with this structure than I would be with a portfolio of a hundred or more stocks with a long tail of smaller positions which, while it may add some diversification, can also indicate a weak sell discipline," he added.

"With corporate activity rising, these are interesting times to be managing a special situations fund and bids have provided a further performance fillip to the fund, most recently, for example, with heavy building materials supplier Hanson. After a strong start for the fund, I remain very upbeat about the prospects for the special situations opportunity set this year," he concluded.