Stock-pickers to benefit from volatility, says F&C's Doel

Current volatility is punishing managers who rely on the market to do most of their work. However today's market conditions are creating a steady supply of attractive opportunities for dedicated stock-pickers.

According to Phil Doel, manager of the F&C UK Opportunities Fund, concerns over slowing growth rates both in the US and Europe, along with the disclosure of further sub-prime losses, have been translated into a healthy flow of interesting 'trading opportunities' for fund managers. He believes these opportunities will continue to emerge over the coming months.

As an example, Doel explained how he has traded HSBC for Cattles, a provider of specialist financial services to non-standard credit markets.

"Cattles shares had sold off in sympathy with the UK banking sector over bad debt concerns and deteriorating economic outlook," he explained. "We bought Cattles as we think the market is being too pessimistic on the outlook. The company has sufficient funding in place for a number of years, though it may have to pay a little more and most of its clients are relatively interest rate insensitive."

Doel also recently sold Lonmin to establish a short-term trading position in mining group Xstrata as the stock had lagged the M& A fever that gripped the sector. This position was sold at the start of February, locking in a gain of 10%.The manager used the proceeds to buy Tesco shares after a period of underperformance, "which we felt was overdone given the quality of Tesco's business" , he added.

The F&C UK Opportunities Fund was launched at the end of 2005 to harness Doel's specific stock-picking talents. It is a 25-stock portfolio containing only the manager's best investment ideas which follows a similar fund he successfully ran at his previous employer, DWS Investments. A strict re-balancing discipline whenever a holding reaches either 5% or 3% ensures a constant reappraisal of the portfolio. There is no inherent style, size or thematic bias and stock-picking is not constrained by any benchmark.

The fund has managed to achieve a top quartile return since launch. "We would expect the performance of our portfolio to continue on an upward trend as the true value of robust bottom-up stock picking comes to the fore," he concluded.