Fund managers are feeling pretty defensive these days, and rightly so, given that 67% undershot their benchmark in the past 12 months. I've found three star managers who have consistently beaten their own benchmarks, and I wanted to see where they were putting their money right now.
Here's how three top managers plan to play 2012.
Making plans with Nigel
Nigel Thomas, who runs Axa Framlington UK Select Opportunities, is that rare breed, a star fund manager who lives up to his top billing. He not only made money during the 1990s bull market and technology boom, he performed well in the subsequent slump. And he is still doing well. In the past three years, he has returned 80%, double his benchmark.
Thomas is currently backing Hertfordshire-based tech specialist Imagination Technologies , in which both Apple and Intel have a stake. It makes its money from collecting royalties on graphic semi-conductor designs in mobile computing, and appears in 100% of Apple products.
But the largest holding in his portfolio is Scottish-based pump maker Weir Group, which makes up 5.1% of his portfolio (up from 4.4% in September). This stock features right at the top of my personal watchlist, and I notice that UBS has just lifted its target price to 2,500p.
AAA-rated Thomas is also increases exposure to Vodafone, which has been quitting slower growth markets in the West, such as France, in favour of booming India. He has also topped up on Royal Dutch Shell , tempted by its 5.5% yield and P/E ratio of 6. Solid pharmaceutical performer GlaxoSmithKline also figures prominently in his top 10 holdings, as does BG Group.
Thomas says equities are cheap, but don't get too excited, because he expects them to stay cheap for some time yet.
Top tips from Motty
Former Credit Suisse star UK equity income manager Bill Mott is now running Psigma Income, which is up nearly 50% over the past three years, just beating his benchmark. He is hunkering down for years of austerity, according to Citywire.
And where do people turn when they are feeling tense and nervous? Into the welcoming embrace of Glaxo, which makes up 6.7% of his fund. Healthcare and pharmaceuticals total a mighty 19% of his portfolio, including a 4.1% holding in AstraZeneca. In hard times, yields of 5% or more are comforting.
Like Thomas, Mott has also put in a call to Vodafone, his biggest holding up more than 7% of his portfolio.
Despite the gloom, or rather because of it, Mott sees "tremendous opportunities" in defensive sectors such as pharmaceuticals, utilities, tobacco and telecoms. They have in-built downturn protection, while yielding significantly more than bonds and cash.
Shell, BP , British American Tobacco , BG, Tesco, Centrica and National Grid make up the rest of his top 10 holdings. No surprises, maybe, but we've probably had enough of those this year.
We may be in a recession, and the macro outlook may be bleak, but most of the bad news is already in share prices, claims John McClure, who manages Unicorn UK Income. He reckons shares will return more than cash in 2012.
It is still too soon to buy retail stocks, McClure says. He prefers truck-parts maker Castings and banking group Brewin Dolphin instead.
An old Champion Shares favourite, commercial flooring manufacturer James Halstead, makes up 5% of his portfolio. Rigid plastic packaging products specialists RPC Group and British Polythene Industries complete the top five holdings in his funding, which has returned an impressive 109% over the past three years. So, it seems there is life away from the blue-chip big guns.
That's how big name UK income managers are lining up for 2012. Will they beat their benchmarks again?