Fund of the week: The five signs of a stellar stock
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Contributing editor
Emily Hohler Nov 18, 2005
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Richard Plackett’s view that bridge, with its emphasis on psychology and intuition, “occupies the same mental space as fund management”, might alarm those who already think institutional investment is a game played with other people’s money. But at least in Plackett’s case the game has been profitable. The manager of the Merrill Lynch UK Smaller Companies fund (and a former British international at bridge) has returned 42.5% in the year to September, compared to the 26% growth of the FTSE index of smaller firms, says Martin Baker in The Daily Telegraph.
The fund holds around 100 stocks in firms with market caps of under £1bn and, while stocks tend to be held for some years, no one stock is ever allowed to grow to more than 2% of the total assets. The selection process is rigorous, as it has to be in this volatile part of the market. His team look at some 700 firms and pick the ones that, in their view, will grow fast. Plackett thinks the best performers share five characteristics: top-quality management, a strong market position that creates barriers to entry, cash generation, a good track record (specifically good earnings-growth momentum), and a strong balance sheet (ie, a net cash balance).
In spite of this, Plackett doesn’t expect to get more than about 70% of his stock picks right, he tells the FT. But one recent investment he is confident about is White Young Green, an engineering consultancy. “It has a strong order book, sells across a wide range and is trading extremely well.” He is also keen on RWS Holdings, a support services firm that is well on the road to hitting profit targets and has £12m of cash on its books.
Contact: 0800-445522, www.ml.co.uk
Merrill Lynch UK Smaller Companies fund
Name of holding % of assets
Numis 2.0%
ITE Group 1.9%
Xaar 1.9%
Spirax-Sarco 1.9%
Incisive Media 1.9%
Synergy Healthcare 1.8%
Enterprise 1.8%
Domino Printing Sciences 1.8%
Aveva Group 1.8%
Mouchel Parkman 1.7%
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Emily Hohler
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