Fund in focus: You can truly pick stocks when you know the companies

A LOT of fund managers describe themselves as "stock-pickers", meaning they can hone in on companies capable of outperforming the broader market.

Very few actually live up to this claim, but it certainly applies to Neil Veitch, manager of the SVM UK Opportunities fund, who has met with nearly every company in the FTSE All Share index over the past three years and discarded most as potential investments.

The fund holds between 40 and 60 stocks, with each holding having a price target. In the absence of developments that suggest there is further to run, stocks are sold when this target price is reached.

Veitch explained: "One of the most difficult skills is to sell your stocks at the right time. Forming an emotional attachment to any holding is dangerous. Although turnover in the fund has been higher recently, I do have holdings that have been in the fund for four or five years now."

Veitch's fund has a natural bias towards medium and small-sized companies because this is where he believes the best opportunities typically lie.

More recently some of the portfolio has been recycled from mid caps into large caps, including a greater exposure to financials.

The fund is allowed to hold up to a fifth of its assets in non-UK stocks and Veitch has taken advantage of this to take positions in two banks in Denmark and Norway.

The strong performance enjoyed by investors in the fund since 2009 followed a particularly difficult year in 2008 when liquidity in mid and small caps proved challenging. To counter this problem in future, the manager can now make use of "shorting". This is another skill-set not common among most "long-only" managers, but Veitch is able to draw on SVM's hedge fund experience in doing this.

Veitch is cautiously optimistic concerning the outlook for the UK market, citing valuations that remain at "reasonable levels" when compared with property or bonds.

"Companies have been at pains to manage analyst expectations, with most forecasting good results between now and the end of 2010, but with some uncertainties in 2011. I would say that privately they are more optimistic than that," he said.

"There will be further M&A activity as business confidence improves. The focus of company boards is now away from survival and on to growth, either organically or via M&A."

• Barry O'Neill is a chartered financial planner with Thomson Shepherd Limited (incorporating Coggans Wood).