Shares to buy, hold and sell
Anthony Nutt is manager of the Jupiter Income Trust, the largest fund in Jupiter's range at £2.45 billion. He has managed the fund since 2000 and has been at Jupiter since 1996. Nutt also manages the Jupiter High Income Trust fund (Unit Trust), the Jupiter Dividend and Growth Trust and is co-manager of the Jupiter Distribution fund.
Over five years, Nutt has delivered a return of 17%, against a peer group average of 14.6%, according to Trustnet. Cherry Reynard talks to him about the last shares he bought and sold, and the one he's holding on to.
BUY: KIER GROUP
"I am genuinely contrarian and long-term when buying stocks. When I look at global valuations at the moment, I see that there's the lowest spread in values on record, with the emerging markets very highly valued and mature markets very lowly valued. This compression in valuations has brought about some opportunities.
"Kier Group is one example of this contrarian approach in action. It operates in the facilities management, construction and residential property areas. The market doesn't like the sector. The UK has just had the Spending Review, which has hit all stocks of this type.
"Kier is the best in class and very lowly valued. It has consistently beaten expectations, with a strong balance sheet with over £175 million in cash. This is equivalent to around 40% of its market capitalisation.
"It also has a growing dividend. The share price is starting to pick up after a strong set of recent figures, but there's still scope for considerable growth and upgrades. The sector has seen some bad news - particularly for Connaught - but Kier has not been hit.
"This is exactly the kind of stock that suits our investment approach. It's long-term, it's contrarian and a super buy."
HOLD: HOCHSCHILD MINING
"I have made very material gains out of the mining sector in my time running the income fund, but I sold most of my holdings in July 2007. However, the one mining position I've held onto is Hochschild Mining.
"It displays all the characteristics of a company called Antofagasta, which was a favoured holding of ours for a number of years and is now a FTSE 100 company.
"Hochschild is a Peruvian silver mining company, listed in London. It's 50% owned by the management team and has a good dividend yield. It operates in just one market and - we believe - is a really effective way to continue to play the commodities game.
"The fund's management is very disciplined and it's very much the best-in-class for what it does. It doesn't dabble in merger and acquisition activity, but just ekes out strong returns over the longer term. From July of this year, the silver price has increased from $18 to $24 an ounce.
"This is a hold rather than a buy because, given the recent spree in gold and silver, it's somewhat ahead of the curve. In general, we think the concept of 'holding' a stock is a bit faint-hearted – we believe you should either buy or sell. However, in this case, we'll make an exception. It's a little bit of spice for our portfolio."
"This really is a contrarian bet, but we believe Reckitt-Benckiser is a sell at current prices. It has been a market darling for a long time – it's up six times or more in the last 10 years, having been run expertly by Bert Becht since the 1990s.
"It has a wide range of top-selling brand names – Vanish, Calgon, Finish – but there are a number of things that make this a sell.
"The first is its acquisition of SSL. I've seen SSL – which owns the brands Durex and Scholl – passed around from pillar to post. It has a good market share and management but has hit something of a cul de sac. We believe it's a dull acquisition.
"Also, there are increasing price wars among the manufacturers of fast-moving goods, such as Unilever, Johnson & Johnson and Proctor & Gamble. All these businesses have been valued in line with assumptions for emerging market growth and this is fully reflected in the prices of these shares.
"Not only is the sector expensive, but Reckitt-Benckiser is expensive relative to its peer group. As such, I believe Reckitt-Benckiser is running out of steam – 2011 earnings are likely to be down around 5% and it appears that it's losing its lustre; it's facing intense competition and muted growth."
A collective investment vehicle (known in the US as a “mutual” or “pooled” fund) and similar to an Oeic and investment trust in that it manages financial securities on behalf of small investors who, by investing, pool their resources giving combined benefits of diversification and economies of scale. Investors buy “units” in the fund that have a proportional exposure to all the assets in the fund, and are bought and sold from the fund manager. The price of units is determined by the value of the assets in the fund and will rise or fall in line with the value of those assets. Like Oeics (but unlike investment trusts) unit trusts and are “open ended” funds, meaning that the size of each fund can vary according to supply and demand of the units form investors. Unit trusts have two prices; the higher “offer” price you pay to invest and the “bid” price, which is the lower price you receive when you sell. The difference between the two prices is commonly known as the bid/offer spread.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
A way of valuing a company by the total value of its issued shares and calculated by multiplying the number of shares in issues by the market price. This means the market capitalisation fluctuates continually as the value of the shares change in the market. For example, HSBC has 17.82bn shares in issue at a price of 646.2p making a market capitalisation of £115.15bn.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.