Funds with a straightforward investment process that any potential investor can understand are unfortunately the minority rather than the norm.
The Legal and General Growth Trust can definitely claim to fit this bill, however, because it typically invests in 25 companies, with 4% of the fund in each.
The trust is only £79million in size, which according to the fund manager, Robert Churchlow, was because of the fact it was a “legacy fund” when he arrived.
He added: “We decided to change the process and relaunch it in 2005.
“Understandably, potential investors wanted to see how it did in a falling market as well as in the good times.
“We didn’t get the chance to demonstrate that until last year and I’m pleased to say that the fund held up pretty well in relative terms due to the defensive rebalancing we carried out last year.”
The fund has delivered a return of minus 19% in total over the past three years compared with minus 32.4% for the sector average fund.
The growth trust represents the 25 “highest-conviction” holdings from the 40 or so stocks the Legal and General UK equity team selects.
Mr Churchlow said: “We are extremely risk aware, but this does not stop us going aggressively into any specific sector of the market when we have a high-conviction view.
“We recently added three stocks that are Lloyds companies, so we have around 12% in the insurance sector.
“That’s a reasonable exposure given our positive view of this part of the market.”
The starting point of having 25 equally weighted holdings of 4% means the manager has to sell something to add a new stock.
He added: “If a holding falls sufficiently from our target holding, we have to decide whether it’s an opportunity to buy more of it, or whether it was a mistake and to get rid of it.
“Likewise, if a holding goes to around 5% of the portfolio, we may trim it back by taking some profits, or if we think it’s got a bit further to run, we’re happy to hold it.”
Barry O’Neill is a chartered financial planner with Thomson Shepherd and can be contacted on 01224 619215