EDINBURGH-based Saracen Global Income & Growth Fund, run by veteran investment manager Graham Campbell, is building holdings in the banking sector but steering clear of state-backed players Royal Bank of Scotland and Lloyds Banking Group.
Saracen Global has taken a stake recently in Credit Suisse, attracted by the bank's appeal to the "global mega-wealthy". Mr Campbell signalled a likelihood that the fund, which has beat its benchmark convincingly in the period since its launch in June 2011, would also take a stake in UBS, another Swiss bank.
Saracen Global took its first holding in the banking sector about a year ago, buying into global giant HSBC, and Mr Campbell said it had so far made a return of about 30% on this investment. He said he had been confident he was buying into HSBC "at about base levels" because it had already made large write-offs of debts, had previously cut its dividend, and had a new management team which had gone through the books. In contrast, Mr Campbell signalled no appetite to invest in Edinburgh-based RBS or in Bank of Scotland-owner Lloyds Banking Group, institutions in which the UK Government has big stakes.
Asked about RBS and Lloyds, fund management industry big-hitter Mr Campbell replied: "In general terms, I would say, for this particular fund, the balance sheets are still too big. There is no prospect of dividends over the next couple of years. For this particular fund, we would not invest [in them] on that basis."
He added: "I think it is very hard to analyse UK banks with sufficient confidence on the result for us to invest. This is a fund that is for a lower-risk equity investor. Investing it in a UK bank is still quite high-risk."
Saracen Global has also been buying pharmaceuticals stocks, with Mr Campbell declaring these were cheaper than tobacco companies, having lower price-earnings multiples and higher yields. Mr Campbell said a variety of pharmaceuticals companies had strong pipelines of new drugs and were making a genuine difference to life expectancy.
He added: "Within Europe, life expectancy increases by about two to three months per annum."
Swiss healthcare company Novartis is Saracen Global's largest holding, accounting for 3.9% of the fund's net asset value (NAV). Pharmaceuticals and diagnostics company Roche, which is also Swiss, is another of Saracen Global's big holdings, accounting for 2.7% of NAV.
UK-based pharmaceuticals company GlaxoSmithKline is another top-10 holding, accounting for 2.4% of net asset value, as is its French sector stablemate Sanofi, comprising 2.3% of NAV.
The fund's other top-10 holdings at the end of March were Unilever, Nestle, Vodafone, Royal Dutch Shell, BP and Reed Elsevier.
Mr Campbell unveiled another strong performance by Saracen Global during the first quarter of this year. The fund returned 14.7% in the three months to March. The return on the UK's FTSE All-Share Index over this period was 10.3%.
In 2012, Saracen Global's return of 13.5% exceeded that of 12.3% on the All-Share.
During the period from its launch on June 8, 2011 to last month, Saracen Global returned 27.3%. The All-Share Index returned 16.2% over this period.
Mr Campbell said: "It is the lowest-risk fund I have ever put together, with very high-quality assets [and] a predictable income stream. We invested in some really high-quality businesses. What you find is through any downturn, the stronger players become stronger because they have stronger balance sheets. They will buy out the weaker competitors. They are able to maintain or grow their market presence through tough conditions."
Mr Campbell became chief executive of Saracen Fund Managers in late 2010 and became a major shareholder in this investment house, which was founded by executive chairman Jim Fisher and has moved its headquarters from Glasgow to Edinburgh. Mr Campbell previously held senior roles at Edinburgh Fund Managers, Scottish Widows Investment Partnership, and Edinburgh Partners.
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