Richard Watts – manager of Old Mutual UK Select Mid Cap Fund

Quality companies have not been sufficiently rewarded with share price rises in 2011
• A volatile and difficult year for FTSE Mid 250 index
• Watts is sticking to his fundamental investment style
• Ashtead a good example of stock with poor share price performance despite delivering earnings upgrades of 30%

Watts is not planning to change his investment approach
• Developed market economic growth will be lower than predicted
• But emerging market economies are still doing 6% pa
• Overall global rate of 3.5% for the year
• This is a supportive environment for holdings in the fund

Watts remains positive on technology stocks
• This is a long-term theme in the portfolio
• A lot of tech stocks are not sensitive to the economic cycle, they represent structural growth
• Valuations are not cheap but they are consistent with the rate of earnings growth being delivered

A favoured long-term hold in the fund is TeleCity, a data centre owner and operator
• Think of data centres as the warehouses that store everything needed to power the internet
• Group has plans to roll out new data storage capacity over next five years – so future growth is very visible
• Internet is a long-term growth story – so this gives stock defensive qualities in uncertain times

Watts continues to hold Rightmove, despite strong run of performance
• Rightmove has great business model and management team
• Benefits from advertising houses for sales online – much better way to do it than via print
• Fixed costs in running the business but revenue is rising - so most of top line growth hits the bottom line
• Expects Rightmove to produce good returns in the future

Mid caps have upside potential
• FTSE 250 has already had strong total returns in last two and a half years
• Despite this mid cap market is trading on 10x forward earnings – a very low figure
• The long term average for mid caps is about 14x
• Company newsflow continues to be very strong, despite recent economic weakness
• Company balance sheets are in a robust state, much better than during financial crisis of 2008

Important Information

This material is for information purpouses only and is not intented as an offer or solicitation with respect to the purchase or sale of any security. Asset.tv and its associates accept no liability for any loss arising from the use hereof nor make any representation as thier accuracy or completeness.

For professional investors only.
Not to be circulated to private investors.