Fund of the week: Floored fund finds its feet
Jan 29, 2010
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After several impressive years, Alan Borrows' fund was floored when credit markets seized up in 2007. So he didn't much enjoy 2008, given his exposure to financial equities. But despite the temptation, he didn't sell at the bottom. And now his nerve is beginning to pay off. The CF Midas Balanced Income Fund he has managed since 2002 is up 22.8% over one year, beating the sector average over the same time period.
Looking to grow income for investors, the fund can invest in everything from equities and corporate bonds to other managed funds. Right now he's shunning gilts due to fears of a supply glut. Instead, he's plumping for corporate bonds, where 16% of the fund is invested. In late 2008 he bought into investment-grade debt from firms such as M&S and Ladbrokes, which were yielding 9%-10%. "There is less value there now, but we've been buying into more strategic bond funds that are investing in sub-investment-grade markets that haven't seen any sign of recovery." He is cautious on equities, but thinks there are still pockets of value in large caps and has recently been looking at big blue chips, such as AstraZeneca and BP.
"These are firms with very big franchises and strong cash flows that have been left behind in the market rally." Priced at just seven-times earnings, he thinks GlaxoSmithKline could easily move to ten times, which would mean a 30% rise in the share price from here. "The firm is generating an awful lot of cash and we wouldn't be at all surprised if they put in place a share buyback scheme to retire some equity."
Borrows' fund, which has just gone ex-dividend, aims to pay 1.2% every quarter and has a prospective net yield of 5.25%. The expense ratio is 1.4%.
Contact: 01519-062450.
Balanced Income Fund top ten holdings
| Name of holding | % of assets |
|---|
| BP plc |
2.14 |
| Vodafone plc |
1.72 |
| GlaxoSmithKline plc |
1.60 |
| Royal Dutch Shell B Shares plc |
1.53 |
| AJ Bell Holdings Limited |
1.38 |
| Scottish & Southern Energy plc |
1.33 |
| AstraZeneca plc |
1.33 |
| National Grid plc |
1.31 |
| Unilever plc |
1.06 |
| Man Group plc |
0.86 |
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