Fund Manager Focus by Ellie Duncan

Richard Plackett joined BlackRock in 2002 and currently manages the UK Special Situations Fund as well as being co-manager of the UK Emerging Companies Hedge Fund.

The UK Special Situations Fund is focused on investing in small-and mid-cap growth stocks, primarily companies incorporated or listed in the UK. Plackett says these account for about 60 to 65 per cent of the fund, which has grown in size to more than £1.35 billion.

The fund’s aim is to achieve long-term capital growth for investors and it has returned £1,873 in the past ten years on a net income reinvested, offer-to-bid basis, from an initial £1,000 investment, according to FE Analytics.

‘The positioning of the fund at the moment is based on quality, which differentiates us from others in the sector,’ he explains. ‘This is definitely not a recovery fund, although we do have the ability to buy recovery stocks.’

Quality not quantity
Historically, the Special Situations Fund has had a bottom-up approach, which Plackett says is vital as the global economy slows. He believes it is important for the remainder of the portfolio to be allocated to large-cap stocks as they are less volatile.

‘We have companies that can grow market share rather than companies whose fortunes are reliant on the economic cycle. It is important right now to own quality businesses because there will be more profit warnings to come.’

He identifies several characteristics shared by those in the fund, including experienced management teams, unique products and strong balance sheets.

The portfolio is heavily weighted towards industrials, a sector where Plackett observes it is easier to find high-quality companies that are exposed to global markets. Despite performing well for the past two years, industrials underperformed in August, but Plackett insists the fund buys shares with a long-term view.

Earlier this year, he increased the fund’s FTSE 100 weighting in order to maintain the portfolio’s balance.

‘We want to outperform all the time, but with 60 per cent in small- and mid-caps, it is easier for the fund to outperform when those companies are outperforming. If you look at 2009 and 2010, the fund did extremely well,’ he says.

Global exposure
The Special Situations Fund’s largest holding is energy and petrochemicals company Royal Dutch Shell at 4.7 per cent of the portfolio, followed by HSBC, which comprises 4.4 per cent of the fund’s holdings.

Plackett explains that when economies were in a fast-growth period a couple of years ago, it was safer to avoid shares in companies such as BP and HSBC. Now, however, the fund favours international organisations and it once again holds shares in both these large-caps.

Plackett recognises that the fund’s sell discipline is equally important as its buy strategy over the long term.

‘When I took on the fund, some of the shares I bought have been bid for and others we have had to sell, but there has been a core.

‘The businesses that are fastest growing are those with exposure to the developing world.’

He adds, ‘Although this year markets have been more difficult, we have had a run where the vast majority of holdings have been performing well. Some of the shares I have invested in personally for a decade or more – small- and mid-cap stocks can outperform for a surprisingly long period.’