Richard Curling, who manages Jupiter U.K. Smaller Companies Fund (JUPUSCI), said he’s reducing his holdings in companies dependent on government funding and buying cyclical stocks that will take advantage of an economic recovery.
In the last three months Curling has sold shares in Umeco Plc, the U.K. supplier to defense companies and wind turbine blade-makers, and added shares in Speedy Hire Plc (SDY), the U.K.’s largest tool-rental company, and Low & Bonar Plc (LWB), a U.K. industrial-fabric maker.
U.K. public debt rose to 801 billion pounds ($1.3 trillion) in July and Curling is betting Britain’s next government, after an election which must be held by June 2010, will cut spending. U.K. manufacturing expanded for the first time in more than a year last month, a sign the economy is emerging from recession.
“Speedy Hire and Low & Bonar are exposed to a broad range of customers and are clear beneficiaries in any pickup in the economy,” Curling, 49, said in a telephone interview. “We’re cautious about public spending for next year.”
Both companies sold shares to existing investors this year to reduce debt. Curling invested at that time “because there was less balance sheet risk and only operating risk, which I am far happier to take,” he said.
Jupiter’s 50 million-pound U.K. smaller companies fund grew 15 percent in the last three calendar months, outperforming the FTSE All-Share Index, which grew 12 percent.
Curling has bought companies whose share price has yet to recover from the financial crisis, such as Tenon Group Plc (TNO), a U.K. adviser to about 10,000 businesses, he said. Tenon reported earnings per share of 2.38 pence in the first half of 2009. The shares traded today at 45.25 pence, a gain of 5.25 pence, or 13 percent, since the end of last year.
“It’s a sensible business on too-low a price,” he said. “It, too, is exposed to a pickup in the economy.”
Curling’s three largest holdings include Fidessa Group Plc (FDSA), the U.K. financial software developer whose customers include Deutsche Bank AG and Allocate Software Plc (ALL), whose programs help the British Army manage solider deployment.
The third is H&T Group Plc (HAT), the pawnbroker founded in south London in 1897. Each makes up about 2.5 percent of the fund. Curling said he keeps stakes below 3 percent to limit risk.
The largest company he invests in is Aveva Group Plc (AVV), the U.K. maker of engineering software for companies such as Royal Dutch Shell Plc. Technology, mainly software, is the fund’s largest sector, making up 12 percent of its value.
In the last six months, Curling has added shares in property companies including London & Stamford Property Ltd. (LSP), the company set up in November 2007 to take advantage of the U.K. real estate market slump. He also bought Max Property Group Plc (MAX), the fund created by Nick Leslau to buy low-priced U.K. real estate and Hansteen Holdings Plc (HSTN), the U.K. company that raised equity for an industrial property fund three weeks ago.
Property companies now constitute 9 percent of the portfolio, an increase from 2 percent six months ago.
“They’ve done it before in previous cycles and we expect them to be able to perform again in this cycle,” Curling said. “I would anticipate keeping them for a while, because they’ve sold their businesses in the past and I expect them to sell them again once the cycle has run its course.”
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