SELECTING ALPHA
Artemis Alpha Trust plc is a leading investment trust in the UK growth sector. The portfolio is made up largely of UK equities, with selected overseas investments. Stock selection is the key to its successful performance. The trust's objective is to produce above average rates of total return over the longer term; and a growing dividend.
A case apart…
Whether from inflation, rising interest rates, sovereign debt and higher oil prices, economies don't have their troubles to seek. But fortunately for investors, economies and stockmarkets are not the same. As they have done in past times of crisis, stockmarkets often go up when economies are going down.
Stock selection matters. In 1965 the market cap of GKN was about three times that of Glaxo. Had you put £100 into the UK market and into both of these stocks on 1 January 1965 and reinvested the dividends, you would now have roughly £25,000 in the market, £5,000 in GKN – and £178,000 in Glaxo (Source, Datastream, 1 January 1965 – 28 February 2011).
Alpha has built its record of performance from selecting stocks on tried and tested criteria – come bull or bear.
Opportunities – and curates' eggs…
Even before events in the Middle East, there was ample to suggest further volatility: the peripheral European debt crisis unresolved, inflation accelerating and monetary policy in the US and Europe likely to return to ‘normal'. Overseas earners have made a significant contribution to our performance. Will that continue? To combat inflation, UK interest rates will have to rise this year. So in theory sterling should strengthen, thus depressing the profits of overseas earners.
It may be that portfolio rotation into UK-centric companies will be one result. We will continue to assess such opportunities on their individual merits, rather than following the latest trend in momentum.
Can the stockmarket deliver another positive year? In theory it can, given the valuations of the major constituents of the index. Many companies still have (relatively) modest price to earnings, premium yields and strong balance sheets. But the same cannot be said of the Mid 250 Index, where a large number of stocks now trade on multiples implying continued strong economic growth and further upgrades. There will be disappointments here.
On the other hand, mergers and acquisitions will continue to add relish to proceedings. UK companies alone have some £160 billion of cash on their balance sheets. The investment bankers will want to see that spent.
We will go on selecting stocks according to the criteria that have served us well. As we have been in the past, in the year ahead we expect to find ourselves happily spoilt for choice.
Asked by a young journalist what had given him most trouble as prime minister, Harold Macmillan replied:"Events, dear boy. Events." Subject to those, the growing divergence in the fortunes of both countries and companies means, in our view, that investment opportunities abound.
Source: Artemis/Lipper - figures show percentage growth on a total return basis. * From 1 June 2003
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