Although it likes to present itself as an active stockpicker intending to provide investors with long-term capital growth, Keystone Investment Trust has tended not to stray far off the beaten track. In all, 44 per cent of the fund was invested in FTSE 100 companies at the end of June, including the top ten investments, which account for 30 per cent of the portfolio.
The exposure to international equities was only 4 per cent, with 16 per cent to small-cap Aim stocks. This has the look of a portfolio that a seasoned investor could largely replicate.
Part of the Invesco Perpetual stable, it had been run by Mark Barnett, one of fund management’s stars, until he handed over to James Goldstone on April 1. Mr Goldstone has made some significant changes. He has slimmed the exposure to tobacco, where stocks have done fairly well in recent months. He has reduced the exposure to pharmaceuticals, taking Astrazeneca out of the top ten holdings even before the disappointing news last week from the Mystic trial.
During the previous half-year the fund had underperformed its benchmark (the FTSE 100), achieving a total return of 4.8 per cent, against an 8.1 per cent rise for the index. The performance was hampered by a lack of global miners in the portfolio at a time when these were surging ahead. When Mr Goldstone took over, he also decided to bulk up on financial stocks, adding Barclays and Lloyds Banking Group because of the potential for dividend growth. At the end of the last month, more than two fifths of the portfolio was invested in financials.
Keystone aims to invest in companies with strong balance sheets, in markets where there are high barriers to entry and where they can increase market share. Alas, Provident Financial, the doorstep lender, probably ticked all these boxes but its shares slid after a nasty profit warning in June.
When Mr Goldstone took over, the management fee charged by Invesco Fund Managers was cut from 0.6 per cent to 0.45 per cent, presumably to reflect the departure of a star manager. He will now have to prove himself further. There is a decent dividend yield and Keystone looks to be on the safe but dull side. Not always a bad thing.
My advice Buy
Why Keystone’s weighting towards large-cap stocks might suit cautious investors, while the new fund manager has been making changes.
XP Power
There is not a lot to complain about in XP Power’s performance of late. Demand is rising so fast for its must-have, sophisticated products that control power in a range of electrical equipment that the company is to build a second factory in Vietnam. Order intake in the first half was up more than 50 per cent, the book-to-bill ratio suggests that more business coming through and own-design product, as opposed to that imported from elsewhere and incorporated into its ranges, has hit the targeted 75 per cent of revenues.
The products are becoming more sophisticated and less vulnerable to cheap Asian competition, while the customers are diverse and revenues are rising in all its markets, leaving the half-year total up by a third. With margins holding up despite higher costs, reported profits before tax are ahead by almost 12 per cent to £14.4 million.
If there is a negative, it is that the sharp rise in the share price, £16 a year ago and up 160p to £26.40, makes the yield on a popular retail stock paying quarterly dividends less stellar. On almost 20 times earnings, there is potential there, though.
My advice Buy
Why Shares not cheap but should have further to run.
Fidessa
There was a degree of relief on the arrival of halfway figures from Fidessa resulting in a 7p rise in the shares to £22.64. The first-quarter update in May had warned that uncertainties over Brexit, the new US administration and various European elections were causing customers to take longer than usual in making investment decisions and the shares, well above £25 at the time, slumped 8 per cent.
The company, which makes software that allows financial instutions to deal in equities and other financial instruments, said that some of that uncertainty had started to ease during the second quarter. Fidessa should be able to match last year’s 3 per cent rise in revenues at constant currency rates this year, even if the halfway figure was up by 2 per cent. Pre-tax profits fell by 2 per cent on the same basis, but this is all down to the cost of relocating its American business.
Fidessa is subject to a two-way pull in its markets: more trading in sophisticated instruments such as ETFs, and the imminence of Mifid II that means greater demand for its products; against this is the gradual loss of clients through consolidation and departures from the market. This latter is lessening, with numbers decreasing by about 2 per cent a year against 8 per cent at its peak, and presumably one day will cease.
The company throws off large amounts of excess cash, which is returned to investors in the form of annual “special” dividends. This gives a decent 4.2 per cent yield, but with the shares on 25 times earnings they are not cheap.
My advice Avoid
Why Most of future progress seems to be in the price
And finally . . .
Globaldata is the latest venture of Mike Danson, who sold Datamonitor to Informa in 2007. It provides companies with data services and has just swung into a small pre-tax profit of £8,000 at the halfway stage, despite a hefty amortisation charge. Mr Danson injected the business into an Aim stock at the end of 2015 and it has taken longer than expected to move into the black. It is now well established in America, the biggest market for business information. The profit was expected, but the shares were still up 6.6 per cent.
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