Phoenix UK Fund Posts Fourth-Best Performance In 2013

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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.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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