Ignis: Portfolio repositioning to reap significant rewards

David Clark, manager of the Ignis Asset Management UK Smaller Companies Fund, believes a recent repositioning of the portfolio will reap significant rewards in the second half of 2009.

Clark, whose fund has outperformed the sector average over May and has a strong 3, 4 and 5 year record, says a recent ‘spring clean' of his portfolio - and a renewed focus on stock picking, rather than market themes - has left him more confident about the fund's performance prospects than at any time over the last six months.

"Since the rally, which did not suit our defensive positioning, we have really gone back to basics and focused on what we do best - unearthing companies that are unloved but have fantastic growth potential. In the past weeks we have been trimming out stocks we like, but feel will not perform as strongly as others we have identified. I'm very confident with what we have now."

Key additions to the portfolio include Advanced Computer Software, a leading provider of software and IT services to the primary care sector; Helius, which manufactures small renewable electricity plants for factories; and Cineworld, a major UK cinema operator.

To finance the acquisitions Clark has sold or reduced positions in companies including Eros International, which distributes Bollywood films, and VP Group, a support services company. He has also taken some profits from Healthcare Locums, a specialist healthcare recruitment company which has delivered significant outperformance for the fund in recent months.

The changes have led the number of holdings in the portfolio to rise to 83 from 70, with Clark saying the repositioning has already begun to bear fruit.

"The likely earnings progression of the underlying portfolio is excellent and I am very gratified with the way the prices of the new stocks have moved - particularly as they remain relatively inexpensive. Small caps are very operationally geared so any small gain makes a massive difference to their bottom line. I'm confident that the stocks we have bought will really start to make significant headway in the second half of the year."

Clark says he is equally bullish on the small cap market itself, which he believes is reasonably cheap at a likely ‘real' P/E ratio of 12/13x 2009 earnings.

"The talk of green shoots is overstating it but government policy is helping and benefitting companies. Clearly a disaster has been averted and I am now genuinely enthused about the prospects for the small cap market as a whole. Optimism is definitely the word to use now when discussing the market - not depression."