Stock selection key to delivering performance from UK mid caps

Ashton Bradbury, Head of UK Mid & Small Caps at Old Mutual Asset Managers (‘OMAM’) and manager of the top performing Old Mutual UK Select Mid Cap Fund, believes that good stock selection will be the key to driving good returns from the mid and small cap sector going forward.

The Old Mutual UK Select Mid Cap Fund, managed by Bradbury since launch in February 2002, is ranked in the top quartile in the IMA UK All Companies sector over one, two, three, four and five years. Since launch it is the best performing fund in the sector, returning 193% against 142% for its benchmark index, the FTSE 250 (ex Investment Companies) Index.

Ashton Bradbury, manager of the Old Mutual UK Select Mid Cap Fund and Head of UK Mid & Small Caps at OMAM, comments: “We believe that in the current investment climate good stock selection will continue to be a key differentiator of performance and we continue to seek businesses which offer good growth prospects at a realistic rating.”

One area that Bradbury currently favours is oil services, which offers strong medium term growth prospects and is benefiting from the continued strength of the oil price. Oil producers are increasing capital expenditure in order to increase production as the high oil price makes previously unprofitable projects economically viable. Bradbury is positive on construction, where late cycle stocks are trading well. The visibility of future earnings is strong as companies look to take advantage of heavy infrastructure spending, both in the UK and overseas. Bradbury also favours support services, where there are some good stock specific opportunities. The trend towards outsourcing continues, with many companies operating in non-cyclical areas and offering the potential for above average rates of profit growth over the longer term.

Matthew Nagele, Managing Director of Fund Distribution at OMAM, adds: “With Bradbury at the helm the Old Mutual UK Select Mid Cap Fund has consistently outperformed both the mid cap index and the UK All Companies sector over the last five years. This outperformance has been primarily driven by good stock selection, supported by some notable macro calls, including positioning the fund defensively in 2002 soon after launch and taking a more pro-cyclical approach as the markets subsequently improved. Bradbury’s superior management capability has gained significant recognition within the intermediary marketplace and I have every confidence that he will continue delivering strong relative returns going forward.”

Bradbury and his team manage their funds using a flexible and pragmatic approach which combines top down economic analysis with bottom up stock research. At a stock level he is looking for companies with at least one of three attributes: whether a company can grow its profits faster than the market average; whether it can beat market expectations; or whether it is likely to be re-rated. Bradbury looks to create portfolios in which he is happy with each stock based on its own attributes, but which in aggregate are positioned consistently with his outlook for markets and economies.