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Richard Moore (of Santander Asset Management UK), who last week assumed management responsibilities for the £1.2 billion Abbey UK Growth Fund, continues to go long on oil company stocks.
The fund is currently overweight in oils, food and beverage producers and telecoms - the not unreasonable argument being that the fund wants to take advantage of recent inflation as higher prices mean higher profits.
In the oil sector major integrated oil companies like BP and Shell are in play as are some of the smaller E&P stocks.
Moore also likes the mining sector, which has performed well already but seemingly remains in a so-called 'supercycle' where interest from China, the Far East and India are going to keep driving metal prices up.
"We don't think that the company values reflect current metal prices and stocks are therefore cheap. They also enjoy strong cashflow, which will either result in M&A activity or better returns for investors," he says.
Moore has also taken advantage of food price inflation by being overweight in selected food and beverage producing companies.
Another area the fund is positive on is the telecoms sector - both mobile and fixed line - because these companies are still in growth markets and tend to be less cyclical. Aerospace is another sector offering opportunity, particularly Rolls Royce, which is in a strong position in the civil aviation cycle.
On the flipside, the fund is underweight in domestically focused retail-sensitive sectors such as retail stores, given that with interest rates rising and debts quite high, there will be some pressure on these stocks. None of the major name stores appear in the portfolio at the moment but Moore says he expects some good opportunities to come up in the sector in the next year..
Moore is less keen on banks, especially the mortgage banks, where pressure is emerging - Northern Rock having recently issued a profits warning. He is also wary of property companies where asset values are coming under pressure.
Overall, he believes the FTSE 100 is capable of making new all-time highs over the next year but will be led by a different set of companies that have driven the market higher so far from small to larger cap companies.
24 July 2007 © Moneyextra.com
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