Standard Life reveals choices to power a recovery

Published on Monday 9 March 2009 20:29

BANKS and retailers have been backed to lead investors out of the recession as a new investment fund puts its faith in sectors that have taken a hammering in the markets.

The UK Equity Recovery Fund, launched by Standard Life Investments (SLI) yesterday as the stock market hit a six-year low, will include holdings in British Land, retailer DSG and packaging group Mondi.

A fifth of the fund, which is aimed at individual investors and has an initial projected size of about 250 million, will be invested in financial stocks, including banks, which had another torrid day in the market yesterday.

Amid a sceptical reaction from some independent financial advisers, SLI insisted it was not trying to call the bottom of the market.

However, SLI's choice of stocks to make up the fund – to be run by David Cumming, its head of UK equities – will be seen as an indication of the businesses that the group believes will lead the stock market recovery.

Jacqueline Kerr, head of mutual and life fund investments at SLI, said: "These are uncertain times so we are not trying to call the bottom of the market. But it will happen some time soon and this fund is positioned to benefit from that."

The fund invests in companies and sectors currently considered undervalued but which are widely expected to bounce back strongly when conditions improve.

Much of the portfolio is still under wraps but the holdings in British Land, DSG and Mondi are significant.

Mondi had to issue a profit warning last year but a strong balance sheet and market position should work in its favour when conditions improve, according to SLI. Similarly, shares in DSG, which owns Currys and PC World, plummeted last year. But last week it announced expansion plans and SLI believes the group's current management can raise the funds it requires.

About a fifth of the recovery fund is invested in financials, including banks, but SLI would not disclose the specific holdings. Kerr said the exposure to financials was predicated on "potential change for the better" in the banking sector, given a catalyst for change.

Other sectors figuring prominently include consumer services, industrials and basic materials. However, the defensive sectors considered most stable in recessionary times, such as utilities, will not feature.

Barry O'Neill, a chartered financial planner at independent financial adviser Thomson Shepherd, said recovery funds were typically driven by stocks rather than industries.

He said: "There should be stock-specific examples across many sectors as it is usually about companies going through restructuring or turnarounds that will take a few years to get back on a even keel and for this to be reflected in their share price.

"I'm not a fan of investment groups seizing on what they think is an opportunity to launch a new fund when in reality all of their existing UK equity funds should be able to participate in any 'recovery' if they're being managed actively."