Phoenix UK Fund had its fourth best year in 2013, generating a 20.9% return while investing primarily in European shares, according to an investor letter reviewed by ValueWalk.
Among the biggest fourth quarter winners in the portfolio were Randall & Quilter, up 25.2%, Bellway plc (LON:BWY), up 21%, Vesuvius PLC (LON:CKSN) (OTCMKTS:CKSNY), up 14.2% and Barratt Developments Plc (LON:BDEV), up 13.9%. The biggest losers in the quarter included Games Workshop Group PLC (LON:GAW) (OTCMKTS:GMWKF), down -16.2% and Tesco PLC (LON:TSCO) (OTCMKTS:TSCDY), down -5.7%.
Insurance business with Lloyds precedes share price rise
Randall & Quilter, the Phoenix UK fund’s largest winner was, like many of the fourth quarter top performers, a relative recent addition to the portfolio. Phoenix UK fund acquired shares in May 2013. In October, the Company announced that it had acquired Flagstone Alliance Insurance and Reinsurance Ltd for $24.1m, a discount to the NAV of $28.1m. CEO, In December the Company announced that its 2014 business plan (to nearly double capacity to £150m from £76m) for Syndicate DTW 1991 has been approved by Lloyds, the letter said. Randall & Quilter remain the lead capital provider, supporting 20% of the capacity, and the share price increased just over 25% in the quarter.
Phoenix UK Fund: Rising tide helps housing exposure
Another near 20% winner in the quarter was Bellway plc (LON:BWY), a housing stock the fund acquired in Oct 2012. In October of 2013 the company announced strong headline numbers: full year results revenue up 10.6% to £1.1bn and gross profit up 25% to £203m with the gross margin increasing over 200bps to 18.3%. Profit before tax was up 34% to £141m and return on capital employed (ROCE) rose to 12.3% from 10.1%. Bellway observed tentative signs of improvement in the housing market in early 2013, the letter noted. In December, Bellway reported in an IMS that trading continues to be strong with net reservations up 43%, with Help to Buy being used in 31% of reservations made during the period. The letter noted Chairman John Watson said that tight cost control and the increased number of completions arising from higher margin land will result in margins rising to 15% in the year ending July 2014. Bellway also confirmed that it has continued to buy land at or above its hurdle rates.
Like Bellway plc (LON:BWY), Barratt Developments Plc (LON:BDEV) has exposure to the housing market, which was strong. Barratt, however, is a longtime holding of the fund, dating back to November of 2007. The Phoenix UK Fund letter notes that although there has been a general improvement in consumer confidence that started to positively impact the housing market early in the year, the (UK) government’s Help to Buy program has been the biggest contributor to the trading improvement. Barratt has utilized the program on 2,800 sales since it was launched.