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Prudential UK Growth Fund - News
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Prudential UK Growth comment - Dec 10
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Monday, 7 March 2011
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Fund Manager Comment
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UK equities were supported by better-than-expected economic data, such as gross domestic product and manufacturing. The news that there would be further quantitative easing measures in the US further bolstered sentiment. Investors' mood became more subdued in November due to renewed sovereign debt concerns in Europe as well as worries about steps to control rising prices in China. Despite this temporary dip, UK equities generated robust returns over the quarter.
As in the previous quarter, cyclical sectors were attractive to more confident investors, with top performing industries including car parts makers, industrial metals and mining. At the other end of the scale, certain defensive areas like pharmaceuticals and food & drug retailers lagged behind. Banks were also out of favour.
The Fund was ahead of the index, with performance supported by a number of cyclical holdings, such as mining and metals firm First Quantum Minerals, iron ore producer Ferrexpo, mining firm Xstrata and oil company Essar Energy. Investor sentiment towards these areas was boosted by strong commodity prices as well as optimism about prospects for the global recovery.
Meanwhile, GKN also added value after the company reinstated its dividend and announced higher sales at its auto-parts division. The company is benefiting from increased exports to companies, such as Germany's BMW and Volkswagen, and strong sales growth in China and India and recovering sales in North America and Japan.
In terms of detractors, a holding in aerospace and defence company Cobham was out of favour with investors after the firm warned that underlying profit growth could be limited because of delays and deferrals in defence and security contracts in the US.
Similarly, defence company BAE Systems held back returns after revealing that it expected some reduction in growth for 2010 following cuts to the UK's defence budget. An order for BAE Systems' Nimrod reconnaissance aircraft has been scrapped.
Pharmaceutical firm AstraZeneca also disappointed as the company acknowledged that generic competition was likely to eat into its profits. Shares in AstraZeneca also dipped after it failed to win US approval for a new blood thinner.
Investment outlook
It is too early to determine the effect of the cuts taken by the coalition government in an attempt to reduce the UK's considerable budget deficit and some concerns linger that the measures may derail the recovery. However, economic growth remains positive and most recent corporate results have been healthy, providing some cause for optimism. Furthermore, large UK firms generally have a significant level of international exposure, making them less dependent on domestic demand. While the possibility of short-term volatility clearly remains, the fund manager believes the longer-term prospects for UK equities is still sound.
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Prudential UK Growth comment - Jun 10
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Thursday, 9 September 2010
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Fund Manager Comment
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Risk aversion dominated sentiment throughout much of the quarter as concern about the debt problems of the euro area led to fears of a double-dip recession. The euro zone represents the UK's main trading partner, making prospects on the continent particularly relevant for the domestic economy. In addition, weaker-than-expected economic data from China and the US dampened sentiment. As a result, UK equities dipped sharply over the quarter. A big drag on the UK stockmarket's performance was caused by the halving of BP's share price following the 20 April oil rig explosion in the Gulf of Mexico. The key event at home was the general election, which brought a Conservative-Liberal Democrat coalition into power. The result removed a degree of uncertainty, but also crystallised the harsh reality of the spending cuts to come. At a sector level, stocks in economically sensitive areas, like construction, resources and automobiles, were weak. However, there were some relatively good performances from the more defensive areas, including personal goods and telecommunications. The Fund was behind the index, with a holding in oil company BP proving particularly damaging for performance following the oil leak disaster mentioned above. Meanwhile, a number of mining holdings in the portfolio with Australian operations, namely Xstrata and Rio Tinto, were hurt by the Australian government's plan to impose a new 40% 'Resource Super Profits Tax' on the profits earned from mineral and resource extraction in Australia. Copper miner First Quantum Minerals also detracted from performance. Sentiment in the stock dipped after the company announced that the Democratic Republic of Congo had awarded rights to one of First Quantum Minerals' mines to an 'unspecified third party'. Finally, international directories company Yell Group dropped sharply after the company's chief executive and chief financial office resigned, following disappointing annual sales. On the upside, a holding in Essar Energy boosted returns. The company, which has joined the FTSE 100 Index, was floated in London in April in connection with a spin-off from India's second-largest private power producer. Meanwhile, Centrica, the UK's largest energy supplier, added value. The company has been able to add household customers at the fastest pace since 2001 after it cut prices in an attempt to cement its position against rivals. Insurer Prudential was a further contributor to performance after being forced to abandon its $35.5 billion takeover attempt of American International Group's main Asian unit. Elsewhere, pharmaceutical companies Hikma Pharmaceuticals and Shire supported performance. Hikma Pharmaceuticals' prospects for selling drugs in the Middle East remain undiminished, while Shire's firstquarter profits were better than expected and indications for sales of newer drugs in the pipeline are strong.
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Prudential UK Growth comment - Mar 10
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Tuesday, 1 June 2010
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Fund Manager Comment
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UK equities advanced relatively well over the quarter due to optimism about prospects for improved economic activity, despite some periods of volatility. Sentiment was temporarily subdued on the back of some concerns that China would tighten its monetary policy in an attempt to control rising inflation. Worries that Greece's sovereign debt problem might derail the global recovery also served to undermine confidence, although investors were less anxious once it became clear that the International Monetary Fund would become involved if necessary.
At home, the UK caught up with other major economies and exited recession during the fourth quarter of 2009, although growth was weak. Meanwhile, the Bank of England put its quantitative easing programme on hold, but indicated that, as the domestic economy remained sluggish, it would start buying assets again if required.
At a sector level, industrial metals featured as one of the strongest performers over the review period, reflecting buoyant sentiment towards the global recovery. Against a generally optimistic backdrop, more defensive sectors, such as utilities and pharmaceuticals, proved less appealing to investors.
The fund was behind the index, with stock selection in banks holding back returns. The portfolio has a relatively light position in a number of banks that outperformed the overall market, reflecting recovery hopes, while it has a comparatively large holding in HSBC, which lagged behind others in the sector because of disappointing results. Meanwhile, insurer Prudential hurt performance as investors digested the news that the company was making a major acquisition in the Far East and planned a $20 billion rights issue to finance the deal.
A holding in oil and gas explorer Tullow Oil was also weak after some profit taking following a very strong prior performance. Tullow is focusing on new projects and has raised £925 million in a share sale to fund exploration and development in Uganda and Ghana. The company sold 80.4 million shares at 1,150 pence each, a 5.4% discount on its closing price the day before. Elsewhere, telecommunications firm BT Group was weak after announcing that the pensions regulator had concerns about the valuation and recovery plan of its pension programme.
Turning to positive contributors to performance, aircraft engine maker Rolls-Royce added value after reporting profits that were ahead of analysts' estimates. In addition, the company pledged to increase the year's final investor payout by 5% to 9 pence per share. Pharmaceutical company Shire also announced favourable figures, with the company beating fourth-quarter profit estimates, partly because of higher-than-expected US government rebates on the Adderall attention deficit pill. The company is also a beneficiary of competitor problems with production quality. Finally, cruiseline operator Carnival contributed to performance after raising its full-year profit forecast as ticket prices rebounded from the lows of the previous year. However, the increased ticket sales and lower costs will be partly offset by higher fuel prices and the stronger US dollar.
Investment outlook
Despite exiting recession at the end of 2009, the domestic economy remains sluggish and continued advances are likely to be weak, as a high level of indebtedness holds back consumption. However, it is important to remember that large UK firms generally enjoy a high degree of global exposure through internationally diversified companies, making them less dependent on domestic demand. Regardless of the potential for volatility in the immediate future, the fund manager remains convinced that prospects for UK equities are sound once a sustained economic recovery takes hold.
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Prudential UK Growth comment - Dec 09
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Friday, 19 March 2010
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Fund Manager Comment
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Fund manager's feedback
Initial stockmarket gains gave way to heightened volatility in October as investors became more cautious about the pace and extent of the 910bal economic recovery. There were also concerns that the rise m financial markets may have exceeded mixed news on economic fundamentals. November saw an improvement in sentiment following the announcement that G20 finance ministers and Asian leaders planned to keep economic stimulus measures in place. Investors were also heartened after the US Federal Reserve signalled that interest rates would remain at record lows for the foreseeable future. Meanwhile, the UK left interest rates on hold at 0.5% and the Bank of England extended the quantitative easing programme by £25 billion to £200 billion. Against this backdrop, UK equities made healthy gains over the quarter.
In terms of UK sectors, mining stocks were among the top performers due to increased optimism about economic recovery and higher commodity prices. At the other end of the scale, the rebound in the banking sector paused in the fourth quarter. Banking stocks came under pressure due to concerns about their exposure to the Middle East because of Dubai's debt problem, while the downgrade of Greece's sovereign rating added to uncertainty surrounding the sector.
The fund was behind the index, but this apparent underperformance relative to the index was largely due to a timing differential in the way the fund and the index are priced. The index is priced at the end of the day while the fund is priced at 12pm.
In terms of sector positioning, the fund was held back by a light exposure to mining stocks with investors flocking to the sector, as described above. However, in a challenging environment for financial stocks, the portfolio's relatively small presence in banks proved helpful for performance.
Turning to individual stocks, a position in Tullow Oil added value on the back of favourable reports about prospects for the Tweneboa field off the coast of Gilana, where Tullow operates a licence. The company also benefited from speculation that BP may bid for Kosmos Energy LLC's stake in Ghana's Jubilee field, operated by Tullow.
Software maker Micro Focus International was another contributor to performance, with shares in the company gaining on reports of healthy first-half revenues. Finally, pharmaceutical company Shire also supported returns after its third-quarter profits exceeded analysts' estimates. In addition, shares in the company were boosted after Shire stressed it had sufficient quantities of a drug to treat a rare genetic disorder, while a firm making a rival product has experienced manufacturing disruption.
Less positively, Laird, which makes electromagnetic shields for mobile phones, held back returns. The company posted a first half loss due to weaker demand because of the recession. Pub owner Enterprise Inns was similarly hit by falling sales. In response, Enterprise Inns is selling some pubs and giving discounts on rent and beer to some tenants. A holding in publisher Informa also disappointed as investors reacted unfavourably to the news that the company was in talks to acquire German academic publisher Springer Science+Business Media, although the discussions later ended without a deal.
Investment outlook
Investor sentiment has picked up in recent months amid hopes that the worst may have passed. Indeed, financial market conditions have improved and there are signs of increased economic activity in a number of countries, although the UK remains in recession. Indeed, it is likely that economic recovery in the UK will be drawn out, with a high level of indebtedness holding back consumption. Although the picture may look uncertain in the immediate future, longer term prospects are more encouraging and the fund manager remains convinced that UK equities will generate healthy returns for investors once the economic recovery is on a surer footing. Furthermore, UK equities represent good value and, although the UK economic recovery may be lagging behind, many large UK companies generate a significant portion of their revenues from international markets, making them less dependent on the domestic consumer.
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Prudential UK Growth comment - Sep 09
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Thursday, 17 December 2009
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Fund Manager Comment
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Investors' appetite for risk increased during the quarter amid optimism over an improving global economic outlook. Investors were encouraged after third-quarter earnings results were generally better than expected. Sentiment was also boosted by speculation that mergers would increase following an agreement between UK telecommunications firm T-Mobile and Frenchowned Orange and a takeover approach by Kraft Food of the US for UK confectionary firm Cadbury. Against this supportive backdrop, UK equities generated robust returns over the quarter.
In terms of UK sectors, cyclical and financial stocks such as engineering, mining and banks featured among the stronger areas over the quarter. Cyclical stocks tend to be sensitive to business cycles and generally do well when economies start to recover. Defensive sectors, which tend to remain stable under difficult economic conditions, proved less popular with more confident investors. For example, utilities, pharmaceuticals and food retailers were among the weaker areas.
The trust was behind the index, with aerospace and defence company BAE Systems holding back performance due to concerns over the resilience of government defence spending and allegations of bribery with the aim of winning contracts in eastern Europe and Africa. The company also lost some long-term contracts to supply armoured vehicles produced by US firm Armor Holdings, which was recently acquired by BAE Systems.
Water companies United Utilities and Severn Trent also disappointed after the UK regulator Ofwat proposed cutting customers' bills by around 4% over the next five years. In addition, utility firms were generally unpopular with investors because of their defensive characteristics. Finally, pub owner Enterprise Inns was weak as investors digested the news that the company had increased the support it was paying to pub tenants during the economic slowdown.
Despite these disappointments, the trust generated robust gains over the quarter, with a range of stocks producing healthy returns. Segro, which owns business parks and warehouses, took advantage of the deterioration in commercial real estate values in the UK to buy rival Brixton. The deal makes Segro Europe's largest real estate investment trust specialising in warehouses and industrial buildings.
Rail and bus operator National Express Group also added value after receiving a takeover bid from private equity firm CVC Capital Partners and Spain's Cosmen family, which is National Express' largest shareholder. Finally, mining company Xstrata contributed to performance due to speculation that the worst of the economic slump may be over, signalling the possibility of increased demand for metals.
Investment outlook
Investor sentiment has improved recently as less negative economic data emerged and a number of countries round the world came out of recession. In the UK, Chancellor Alistair Darling believes a domestic economic recovery will be underway by the turn of the year. However, unemployment has continued to rise and economic activity is still fragile. In this environment, the possibility of short-term disappointments remains and a cautious approach is being adopted at present. The fund manager believes that UK equities will lead to solid returns for investors once a sustained recovery gets underway.
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Prudential UK Growth comment - Jun 09
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Wednesday, 23 September 2009
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Fund Manager Comment
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The rally that began in global equity markets in early March continued for much of the quarter. Investor sentiment was buoyed by the measures taken by the authorities in the US and the UK to boost the supply of money and stimulate economic activity. Confidence was dampened towards the end of the quarter as renewed concerns about the US growth outlook reduced risk appetite. Nevertheless, the UK equity market made solid gains over the three months under review.
In terms of UK sectors, cyclical stocks like automobiles & auto components and industrial metals proved popular with investors. Such companies tend to appeal to more confident investors as their performance is strongly connected to the overall economy. Banking stocks also performed well. Meanwhile, defensive stocks, which generally remain stable under difficult economic conditions, generated only small returns over the quarter. Specific examples include tobacco, electricity and utility companies.
The Fund was ahead of the index, with performance supported by a holding in National Express Group, which gained following reports that the company had rejected an unsolicited offer from rival train operator FirstGroup. Elsewhere, shares in mining company Xstrata were supported by increased investor confidence in its prospects against a more positive economic outlook. Invensys, which makes controls for equipment like washing machines, also added value. Shares in the company strengthened as orders at the company surged. Investors were also encouraged as Invensys announced plans to pay its first dividend in six years.
Inevitably there were some disappointments over the quarter. The fund has a light exposure to banking stocks and so was not able to participate fully in a strong rally in this sector, fuelled by investors' increased risk appetite. As a result, this positioning was detrimental for performance. In addition, shares in music retailer HMV held back returns as full-year profits dropped after a difficult trading environment.
Investment outlook
Despite recent gains in the UK stockmarket, it is not clear how much longer the recession has to run and there may well be further volatility to come. On the downside, weak demand from consumers and businesses alike has led to downgraded forecasts for corporate earnings growth, while unemployment is rising. More positively, financial market conditions have improved and the downturn in economic activity seems to be slowing, although the timing of an end to the recession is uncertain. The possibility of short-term disappointments remains, but the fund manager believes that UK equities will lead to solid returns for investors once the economic climate improves.
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Prudential UK Growth comment - Mar 09
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Thursday, 11 June 2009
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Fund Manager Comment
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UK equities were weak for much of the quarter, reflecting ongoing concern about the economic slowdown and uncertainty in global financial markets. Rising unemployment added to the gloom. In an attempt to boost economic activity and improve liquidity, the Bank of England implemented interest rate cuts to leave the rate at 0.5%. However, confidence was boosted in March: as investors contemplated bold steps taken by the US authorities to soak up toxic assets from troubled banks. Investors were encouraged when the US and the UK announced plans to buy large amounts of government bonds, effectively increasing the amount of money in their economies. However, the rally towards the end of the three months was not enough to compensate for the earlier falls and the UK stockmarket declined sharply over the quarter.
In terms of UK sectors, mining stocks proved popular with investors, who were encouraged that the steps taken by the authorities, both at home and abroad, to boost economic activity would have a positive effect on demand for industrial metals. Life insurance and banking stocks continued to suffer from negative sentiment affecting the financial sector.
The Fund lagged behind the index, with performance held back by a number of banks, which remained out of favour with investors because of the turmoil affecting financials. Specific detractors included HBOS, which has been severely hurt by the credit crunch and was taken over by Lloyds TSB during the quarter, and HSBC. Insurer Aviva also disappointed on concerns about its capital reserves. Despite posting a record loss, the company maintained its dividend payment. Stocks in the travel sector came under pressure due to expectations that the recession would restrain traffic. Holdings in National Express and rail company FirstGroup held back performance. FirstGroup is cutting 3,500 jobs in the US and the UK in response to the economic downturn. The company believes it can still meet its fiscal year earnings goals.
Rio Tinto gained following the announcement that China's Aluminium Corp planned a significant investment in the firm to add to its existing stake. Weir Group, which makes pumps for the mining industry, also boosted returns. Explorer Tullow Oil, which has projects in Ghana and Uganda, added further value for the fund. The shares gained after the company raised $2 billion in loans to fund developments and refinance debt. In addition, it announced a further discovery in Ghana. A holding in gas producer BG proved supportive on the back of healthy gains in its fourth-quarter profits due to a strong performance from its liquefied natural gas business. The company also increased its dividend by 20% and provided further evidence of discoveries in Brazil.
Investment outlook
Faced with a potentially lengthy recession in the UK and T E other major economies, further volatility over the short term is to be expected. Weak demand from consumers and businesses has downgraded forecasts for corporate earnings growth, while unemployment is rising. More positively, the indiscriminate weakness in equity markets can reveal attractive investment opportunities with the potential for longer term gains, although careful stockpicking remains key. While the picture in the immediate future is uncertain, the fund manager believes strongly that prospects for UK equities are sound over the longer term.
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Prudential UK Growth comment - Dec 08
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Monday, 23 March 2009
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Fund Manager Comment
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Turmoil in financial markets, together with concern about slowing economic growth and the prospect of recession, led to a turbulent fourth quarter for UK equity markets. The deteriorating housing market and fears of rising job losses added to the gloom. In an attempt to improve liquidity and boost economic activity, the Bank of England cut interest rates three times during the quarter, to 2%, with further reductions expected. Indeed, rates were lowered by another 50 basis points to 1.5% shortly after the end of the review period.
In terms of UK sectors, defensive areas such as pharmaceuticals, beverages and food producers were among the best performers, while industrial metals and mining stocks dropped sharply due to shrinking demand amidst the economic slowdown. Banking stocks continued to be affected by negative sentiment and large loan loss provisions and they were one of the weaker sectors over the quarter.
The Fund was ahead of the index, with performance boosted by oil company BP. The company announced a strong increase in third-quarter profits, because of higher crude and natural gas prices, and an increased dividend payment. Although oil prices have been falling since July, the company announced its intention to boost future dividends.
Mobile phone company Vodafone added further value partly because it is a very large company that is perceived by investors as relatively safe during difficult economic conditions.
Elsewhere, Rolls-Royce, which makes aircraft engines, contributed to performance as investors welcomed its announcement that profits for 2008 would benefit from increased contracts. Investors had been concerned that higher fuel prices and declining demand for air travel would lead to fewer orders for new planes and engines.
Despite these solid performances, there were some disappointments. Apart from continued negative sentiment affecting the sector, banking group HBOS was hurt by its announcement that bad-loan charges had risen to US$5 billion, led by an increase in bad corporate debt. HBOS has been badly affected by the credit crunch and is in the process of being bought by Lloyds TSB.
Meanwhile, mining companies Lonmin, Xstrata and Rio Tinto detracted because of lower prices for metals, as weaker economic activity in the US, Europe and Japan curbed demand for metal from builders and manufacturers. Similarly, Weir Group, which makes pumps for the mining industry, was held back due to declining sales at its US unit as well as falling metal prices, which have reduced profits for the company's clients.
Investment outlook
Faced with recession and rising unemployment, investors are likely to remain risk averse for the immediate future and further volatility is expected. More positively, the turmoil in equity markets can reveal good quality investment opportunities at attractive valuations for the fund manager to exploit and as ever, careful stockpicking remains critical. Despite the gloomy picture for the short term, the fund manager believes that the longer-term prospects for UK equities remain sound.
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Prudential UK Growth comment - Sep 08
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Tuesday, 25 November 2008
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Fund Manager Comment
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Volatility continued during the quarter under review, with sentiment dampened by concerns about slowing economic growth, rising inflation and fears over available credit. Turmoil in financial markets, stemming from the sub-prime mortgage crisis and the credit crunch, from mid-September led to sharp declines in equities and markets were down over the quarter. Against this challenging backdrop, UK stockmarkets were behind the global average and US, European and Japanese markets, but ahead of their Asian counterparts. In striking contrast to the previous quarter, UK mining and oil companies featured among the weaker sectors, reflecting falling commodity prices, stemming from concern about a global economic slowdown. Defensive sectors, such as pharmaceuticals and utilities, were among the stronger areas as they tend to remain stable in difficult economic conditions.
The Fund was behind the index, with performance held back by a holding in banking group HBOS. The company gets a large part of its funding from capital markets and it has been badly hurt by the credit crunch. HBOS is in the process of being bought by Lloyds TSB. A range of companies were hurt by falling commodity and oil prices in the wake of slowing economic growth.
On the upside, performance was helped by a position in British Energy because of takeover speculation and subsequently a bid from French company EDF. Positions in pharmaceutical companies Shire and GlaxoSmithKline added value as investors were reassured by their defensive qualities. Shire also benefited from reporting sales of the Adderall XR hyperactivity treatment that exceeded analysts' estimates. A holding in Rolls Royce, which makes aircraft engines, proved helpful for performance. The company's share price rose after exhibiting resilient earnings in the face of a difficult civil aerospace background. Investors also welcomed the news that the company plans to set up a nuclear division.
Investment outlook
It is clear that financial markets face serious difficulties and global economic growth is slowing. As a result, volatility in the immediate future is to be expected. More positively, the recent downturn in equity markets may well throw up interesting investment opportunities as valuations become more reasonable. As ever, careful stock picking is fundamental in securing healthy returns for investors. Despite the recent declines, the fund manager remains convinced that prospects for UK equities are sound over the longer term.
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Prudential UK Growth comment - Mar 08
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Friday, 23 May 2008
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Fund Manager Comment
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The difficult conditions that characterised the end of 2007 also marked the beginning of the new year as the fallout from the problems in the US continued. In particular, the realisation that growth in the US economy was slowing sharply made investors nervous about prospects for economic growth elsewhere. Investors in UK equities received some comfort when the Bank of England cut interest rates in February with the aim of boosting the economy. Apart from weaker global growth, the UK has been hurt by tighter lending conditions - brought about largely by the US sub-prime mortgage crisis - as well as higher energy and food bills. As a result of these challenging conditions, UK equity markets dipped over the quarter.
The Fund was broadly in line with the index, with performance boosted by a holding in British Energy as a result of takeover speculation. A position in Aegis, an independent buyer of advertising space and media research, also added value on the back of earnings for 2007 that were ahead of analysts' estimates. The company has been acquiring online
companies around the world to make up for a decline in traditional media. Performance was helped by a position in defence company BAE Systems due to good results and a succession of large orders for equipment supporting US troops in Iraq. Miner Rio Tinto also boosted performance following a renewed takeover bid from BHP Billiton that was higher than its previous offer, as well as sustained growth in demand from China.
Performance was held back by a number of holdings, including publishing group Informa after its chief executive left to join a rival company. Aircraft engine manufacturer Rolls-Royce also disappointed investors by failing to announce an anticipated share buyback and on concerns surrounding civil aerospace demand. Finally, mortgage lender HBOS came under pressure due to speculation that the company had funding difficulties. However, the UK regulators are investigating 'false rumours' about the firm.
The outlook for equities remains uncertain and stockmarkets are likely to remain volatile for the immediate future until there is more clarity about the full effect of the difficulties in the US on the global economy. However, equities offer attractive long-term value relative to other asset classes and are more likely to benefit than other areas once investor confidence returns. We remain convinced of the case for investing in the UK equity market over the long term, regardless of the short-term UK equities
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Prudential UK Growth comment - Dec 07
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Friday, 22 February 2008
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Fund Manager Comment
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UK equities continued to be volatile over the fourth quarter, with investors becoming increasingly risk averse as they contemplated the possibility of an economic slowdown in the US. The deteriorating housing market in the US and the collapse of the sub-prime mortgage market contributed to a severe lack of confidence. The mood improved temporarily in October following a cut in US interest rates, designed to revitalise the domestic economy. However, November saw further volatility due to renewed concerns about the global economy. Further gloom followed in the form of weaker housing prices in the UK and a slump in consumer confidence. The Bank of England subsequently cut UK interest rates by 0.25% in December, after keeping them on hold for the previous five months.
The Fund was ahead of the index, with performance boosted by a holding in BG Group, which is expected to benefit from higher liquefied natural gas prices in Asia. The company's share price was further supported by optimism about a new oilfield offshore Brazil that the company is exploring. Miner Rio Tinto also added value. The company's share price rose sharply on the back of a hostile bid by BHP Billiton and subsequent speculation of a rival Chinese offer. Gyrus Group, which makes minimally invasive surgical instruments, was a further contributor after Olympus agreed to buy the company in a $1.9 billion transaction. Shares in Gyrus leapt by over 50% on news of the deal. Elsewhere, drilling contractor Abbot Group also attracted takeover attention and received a $1.8 billion bid by First Reserve Group, a private equity investor that specialises in the energy industry. Finally, healthcare group SSL International boosted performance as the company's sales rose at the fastest pace in at least four years.
On the downside, mortgage lender HBOS detracted from performance due to continued negative sentiment because of uncertainty over the availability of credit and a weakening UK housing market. Invensys, which makes controls for various types of equipment, also held back performance on concerns that sales of the company's radiator thermostats and controls would be hurt by the housing slump in the US, as well as the effects of the weaker dollar. Pub landlord Punch Taverns also disappointed. The company has been affected by the smoking ban, lower consumer spending and poor weather over the summer.
Investment outlook
The outlook remains uncertain and it is likely there will be continued volatility in the immediate future. That said, UK corporate health remains in good shape and equity valuations are still attractive. Despite the potential for weakness in the short term, we remain convinced that UK equities represent a sound investment over the longer term.
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Prudential UK Growth comment - Sep 07
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Tuesday, 30 October 2007
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Fund Manager Comment
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UK equities fell over the quarter due to continued investor uncertainty about the effects of the credit crunch on the wider economy. Fears over UK banks' exposure to the sub-prime mortgage market in the US led to a tighter credit environment. As a result, mortgage lender Northern Rock was forced to ask the Bank of England for emergency funds, triggering a severe fall in its share price. UK equities made up some of the ground lost towards the end of the review period when the US Federal Reserve cut interest rates by 50 basis points to 4.75%.
The Fund was ahead of the index. Performance was helped by a position in defence company BAE Systems on the back of speculation of a large order from Saudi Arabia. Tullow Oil also contributed to performance after the company announced that recent discoveries offshore Ghana may hold more oil reserves than originally estimated. Declining gas prices in the UK and rising costs in the North Sea had led Tullow to focus on developing its African oil assets, which now account for more than half of its revenue. Finally, mining group Rio Tinto gained on sustained growth and demand from China and continued increases in commodities prices.
On the downside, performance was held back by a holding in Invensys, which makes controls that help run refineries and washing machines. Shares in the company dipped on profit taking. Investors also responded to unexpected investment in the company's process division. Pub landlord Punch Taverns was a further detractor. The company had performed well on the back of its property portfolio, but real estate stocks were weak throughout the quarter. Elsewhere, car rental company Avis Europe disappointed as the costs of fleet renewal increased and the average prices charged fell in response to longer hiring contracts to customers.
Investment outlook
Despite the recent turmoil in the stockmarket, the UK economy remains healthy. Core inflation is rising at less than 2% and unemployment figures are relatively low. Although the outlook for the US economy is uncertain, growth elsewhere around the globe remains robust, which bodes well for UK equity markets. For example, China is still growing at a healthy pace. Meanwhile, UK equity valuations continue to be encouraging. Although there may well be further volatility in the short term, prospects for equity markets over the longer term remain encouraging.
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Prudential UK Growth comment - Jun 07
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Tuesday, 25 September 2007
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Fund Manager Comment
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UK equities gained over the quarter, boosted by the strong performance of commodity shares, which were supported by a rise in oil and metals prices and takeover speculation in the metals sector. The UK is closely aligned to global economic performance and strong global economic growth contributed to the stockmarket's gains. Continued merger and acquisition activity further underpinned UK equities. Domestic economic fundamentals
were positive over the quarter; unemployment remains low and retail sales are healthy. Despite monetary tightening by the Bank of England, there has not yet been an impact on the housing market or consumer confidence.
The Fund's performance was behind that of the index because of a timing differential. The index is priced at the end of the day, while the Fund is priced at 12 noon. This can lead to significant apparent differences in performance in the short term. In terms of individual stocks, miners Rio Tinto and Lonmin were significant contributors to performance on the back of continued strong demand for commodities, led by China in order to feed its rapid economic growth. Shares in Rio Tinto also benefited after the company approved a US$1.8 billion expansion of its Yarwum alumina refinery in Australia's Queensland state to meet rising demand. Elsewhere, oil and gas explorer Tullow Oil made healthy gains after the company found oil at an exploration well off Ghana. Pharmaceutical company Shire was a further contributor to performance, benefiting from robust profit growth, which was boosted by sales of new medicines.
Less positively, a position in weapon maker BAE Systems held back performance. Car rental firm Avis Europe also detracted as the company has suffered from intense price competition. Meanwhile, specialty jewellery retailer Signet also acted as a drag on performance.
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Prudential UK Growth comment - Mar 07
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Monday, 28 May 2007
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Fund Manager Comment
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UK equities generated positive returns over the three months under review. Investors started the quarter in an optimistic mood, but this changed suddenly as their confidence was hurt by the collapse in the Chinese stockmarket and problems in the US sub-prime mortgage industry. Nevertheless, equity markets rallied towards the end of the quarter, supported by economic fundamentals that indicated that the UK economy remained robust with falling unemployment, healthy retail sales and further price increases in the housing market.
The Fund underperformed the index, with performance held back by a holding in power producer British Energy, reflecting investors' unease about prospects for the the company's profits. A holding in car rental company Avis Europe also detracted.
Performance was helped by a position in MyTravel. following news of a merger with travel company Thomas Cook. A holding in medical device company Smith & Nephew also helped. The company's fourth-quarter profits rose strongly as new products boosted its share in the market for artificial hips and knees. Finally, Meggitt, which makes components for aircraft, added further value.
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Prudential UK Growth comment - Dec 06
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Wednesday, 14 March 2007
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Fund Manager Comment
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UK equities produced positive returns but were held back by the ongoing strength of sterling. The UK economy continues to show resilience as indicated by falling unemployment, healthy retail sales and ongoing price increases in the housing market. Small and medium-sized companies outperformed their larger counterparts, mainly because of a surge in merger and acquisition activity. At sector level. top performers included industrial metal companies, while pharmaceutical companies and leisure goods companies were among the weaker performers.
The Fund underperformed the benchmark, with online gaming companies PartyGaming and Sportingbet among the largest detractors. Like others in the sector, the two stocks were hurt after laws were passed in the US preventing internet gambling. Oil company BP Amoco also detracted amid weaker oil prices and operational problems at its production bases in Alaska and the Gulf of Mexico. Meanwhile, banking group HSBC was a further disappointment after the company's thirdquarter revenue growth slowed due to rising bad loans in the UK and the US.
Among the contributors to performance, pub operator Punch Taverns benefited from higher sales, largely because of acquisitions and renovated properties that won more customers. Shares in drug developer Shire rose on growing investor confidence in its strong product pipeline, along with reports of a possible bid by drug company AstraZeneca. Further positive news came withShire's announcement of stronger-than-expected third-quarter profits. Miner Lonmin was also among the contributors due to robust demand for platinum, which is used in catalytic converters that help reduce exhaust emissions. The company has good long-term prospects due to a predicted fourfold increase in car sales in China by 2020 and stricter environmental laws in Europe and the United States.
Investment outlook
The UK stockmarket is international in nature and tends to be affected by general developments in the world economy. The global macroeconomic environment is likely to look less rosy in 2007, driven by slowing economic growth in the US. Against this global backdrop, there may well be a slowdown in earnings growth in the UK. However, it is worth noting that earnings have been at record levels this year and that corporate profits are ultimately the main driver of share prices. Despite the risks, there are still reasons for UK investors to remain optimistic. Merger and acquisition activity continues at a fair pace, there remains plenty of cash for investment worldwide and valuations remain compelling.
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Prudential UK Growth comment - Sep 06
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Tuesday, 28 November 2006
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Fund Manager Comment
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UK equities produced modest returns and underperformed their European counterparts. The UK market was hurt by its heavy exposure to energy and resource stocks, which suffered as commodity prices fell over the quarter. Large-cap stocks underperformed their smaller counterparts over the three months, following a period of outperformance in the previous quarter. Mid-cap stocks were the best performing area of the UK equity market, due to a surge in merger and acquisition activity. The UK economy continues to perform well as indicated by strong retail sales, continued price increases in the housing market and healthy manufacturing orders.
The Fund underperformed the index. Performance was held back by a holding in online gaming company Sporting bet, which was affected by a clampdown in internet gambling in the US. A holding in oil company BP also disappointed, reflecting lower oil prices, a series of environmental blunders and a shortfall in production. Shares in British Energy fell after the company said that unplanned repair work would force it to reduce electricity production. Meanwhile, car rental company Avis disappointed as increased competition hurt prices charged.
More positively, a holding in cruise operator Carnival proved helpful as the company benefited from stabilising ticket prices, increased demand for European and Alaskan trips and a falling oil price. Healthcare company SSL International also added value. The company's share price rose on speculation about a possible takeover bid by Procter & Gamble. Fellow healthcare company Smith & Nephew was boosted by its second-quarter results, with net income higher than analysts had expected. Elsewhere, pharmaceutical company Shire saw its share price rise after the firm received US approval to sell a treatment for Hunter Syndrome, a genetic condition that kills most people with the condition before they reach the age of 20.
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Prudential UK Growth comment - Jun 06
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Wednesday, 16 August 2006
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Fund Manager Comment
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UK equities retreated over the quarter, cancelling out some of the recent strong gains. However, the UK's defensive nature helped to insulate it from some of the factors affecting other global markets. The UK's large-cap stocks fell back by less than their smaller peers during the three months. With a notable pick-up in risk aversion in May, investors became nervous of riskier assets, causing smaller and mid-cap stocks to retreat more sharply. The UK economy continued to show tentative signs of improvement over the period. Consumer spending and the housing market continued to strengthen, although unemployment also picked up.
The Fund underperformed the index, with performance held back by a holding in a position in cruise operator Carnival. Shares in the company fell sharply on the back of higher fuel prices and a disappointing early booking season. Orthopaedic company Smith & Nephew also detracted from performance. Investors were concerned about Smith & Nephew's longer-term growth prospects after the company cut its earnings forecast, citing lower healthcare spending in the US and Europe. Weapons maker BAE Systems was another detractor. Shares in the company fell due to concerns that it may get less than previously expected for its 20% stake in Airbus SAS. BAE is in talks to sell its share to EADS, which owns the remaining 80%.
More positively, the performance of the Fund was helped by the holding in platinum miner Lonmin. This benefited from rising demand for the precious metal (especially for autocatalysts in cars) and higher prices. The position in airport owner BAA was also beneficial with the shares rising after it received a takeover bid from Spain's Grupo Ferrovial.
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Prudential UK Growth comment - Mar 06
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Thursday, 11 May 2006
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Fund Manager Comment
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Investors managed to shrug off their unease about higher US interest rates and were generally optimistic about the prospects for economic growth and share prices over the review period. Increased M&A activity also held investors' attention and this added a further boost to the stockmarket. Furthermore, the UK equity market continues to be driven largely by the multi-national nature of UK companies. A heavy weighting in non-energy resource stocks in the UK stockmarket proved beneficial, as these sectors were boosted by the robust global economic picture.
The Fund underperformed its index over the three months with a position in cruise operator Carnival proving detrimental. Shares in the company fell sharply on the back of higher fuel prices and a disappointing early booking season. Performance was held back by a holding in newspaper group Daily Mail due to investor disappointment that the company would not after all sell its Northcliffe regional newspaper unit after receiving bids that it considered were too low. Orthopaedic company Smith & Nephew also detracted from performance. Despite increased profits in the fourth quarter, investors were concerned about the company's longer-term growth prospects.
Performance was helped by bid speculation concerning various holdings in the Fund. Shares in platinum producer lonmin gained after initial talks in February with a third party aroused investor interest, but the talks ended without a bid a week later and lonmin's share price fell back. However, in common with other stocks in the sector, higher metal prices then drove the share price up further. Similarly, oil and gas company BG Group performed well, partly on the back of speculation that a rival company was interested in making a bid and partly due to high gas prices. Airport operator BAA also rose on newspaper reports that Spanish construction company Grupo Ferrovial was preparing to make an offer. Meanwhile, nuclear power producer British Energy Group added value on the back of higher electricity prices.
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Prudential UK Growth comment - Sep 05
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Wednesday, 26 October 2005
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Fund Manager Comment
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Robust returns from UK equities were generated against a softening economic background. Investors continued to be broadly optimistic about prospects for ongoing global economic growth. In addition, the UK market's international bias renders it less dependent on domestic demand, allowing investors to reap the rewards from strong foreign earnings streams. Moreover, given the high weighting of resources companies in the UK stockmarket, the burgeoning prices of oil and other commodities have, on balance, provided a boost to the overall level of returns. At the other end of the scale, general retail was one of the weakest sectors, reflecting lacklustre consumer demand in the UK.
The Fund underperformed its index. Detractors to performance included Royal Bank of Scotland, broadcaster ITV and construction group Bovis Homes. Royal Bank of Scotland disappointed after its first-half net income fell short of analysts' estimates. However, we are confident about longer-term prospects for the stock as it is inexpensive and has a successful track record of building new businesses. ITV was hurt by a declining share in television audiences. Meanwhile, Bovis Homes' profit fell after higher borrowing rates hurt demand for large, detached houses - its most profitable market.
On the upside, performance was helped by holdings in aerospace group Rolls-Royce and stockbroker Collins Stewart Tuller. Rolls-Royce's first-half profit increased because of demand for parts and repairs on the back of greater air traffic. Shares in Collins Stewart Tuller gained more than 20% after receiving a number of takeover approaches. Investment outlook Stockmarkets in the UK and most major economies have continued to rally, fuelled by a combination of optimism on global economic growth, positive news from the corporate sector and modest share valuations. In particular, the pace of both restructuring and takeover activity shows few signs of slackening and company profits and dividends continue to generally exceed expectations. We remain focused on companies that stand on attractive valuations and have the potential for growth over the long term as we believe these have the best potential to generate positive investment returns.
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Prudential UK Growth comment - Jun 04
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Wednesday, 15 September 2004
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Fund Manager Comment
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Fund manager's feedback
A key theme in the UK equity market over the second quarter was the stronger performance of larger companies over small and mid caps. This was largely due to investors' decreasing appetite for risk, as well as the yield advantage of larger companies.
The Prudential UK Growth Fund underperformed the FTSE All-Share Index over the quarter. The Fund was hurt by a position in mining company Lonmin. During 2003, Lonmin had been helped by strong demand in China for copper and platinum. However, the Chinese government is now seeking to slow its buoyant economic growth, which could curb demand for a variety of metals, with potentially damaging effects for mining companies such as Lonmin. A position in media company British Sky Broadcasting affected performance negatively. During the quarter, the company's customer growth dropped to the slowest pace in more than two years.
More positively, as in the previous quarter, Rolls-Royce was a key contributor. The manufacturer of aircraft engines is seeing greater demand for spare parts and repairs, and has also carried out successful restructuring measures. In addition, Rolls-Royce won a contract to provide engines for a new jet plane, the DreamLiner, which will be built by Boeing. This has boosted investors' confidence in the stability of Rolls-Royce's future business. A further contributor was oil company BP, which gained because of the high price of oil.
Investment outlook
Stock markets have been lacklustre over the past few months due to concern about ongoing hostilities in the Middle East, the effect of the high oil price on continued economic recovery, and measures taken by the Chinese authorities to slowdown the domestic economy. However, UK investors are becoming more hopeful that some of these issues will be resolved and are now beginning to focus on positive factors again. A further positive factor is that the recent weakness in equities has led to a greater number of attractively priced investment opportunities.
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Prudential UK Growth comment - Mar 04
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Monday, 10 May 2004
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Fund Manager Comment
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The first quarter of 2004 was flat for the UK equity market, as investors paused for breath after the heady gains of 2003. There was a general preference for smaller stocks, which made good progress over the quarter, while larger companies fell behind.
The Fund underperformed the FTSE All-Share Index over the three-month period. Performance was held back by a position in Pharmaceutical company GlaxoSmithKline, which is currently suffering from generic competition on key drugs. The company, which generates more than half of its sales in the US, has also been hurt by the fall in value of the US dollar against sterling. Diversified Healthcare company SSL International was another disappointment. The company is selling-off various non-core businesses, but this disposal process is taking longer than had been expected.
On a more positive note, Aerospace group Rolls-Royce proved a notable contributor. The company is seeing greater demand for spare parts and repairs and has also carried out some successful restructuring measures. HMV Group, which operates music stores and Waterstones bookshops, was another contributor. HMV's sales are increasing due to greater demand for books and DVDs. The company is expanding its selection of DVDs to counter falling demand for CDs as consumers increasingly download music from the Internet.
A number of Support Services firms proved useful to performance in the quarter. Services group Serco is winning more service agreements as the UK government contracts out more services. Securicor gained on news of a planned merger with Danish company Falck. Investors have welcomed the deal, which would see Securicor's cash-handling business combined with the international guarding business of Falck, the world's second largest security company.
Investment outlook
Economic recovery in the UK remains uncertain: government spending and a rising housing market are propelling growth, but the strength of sterling i s making it difficult for UK manufacturers and exporters. Economic data and trends in the US also play a significant role in determining investor confidence and the imminent release of first-quarter financial results will be met with keen interest. Generally, however, investors in the UK equity market remain broadly optimistic about prospects for continued global economic recovery, based on economic growth in the US and China, which is expected to filter through to other economies. In addition, there have recently been some encouraging reports of falling unemployment levels in the US, which should boost investor confidence further.
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Prudential UK Growth comment - Dec 03
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Monday, 9 February 2004
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Fund Manager Comment
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The final quarter of 2003 was a strong one for UK equity markets. Recovery from earlier lows continued to take place, with positive political and economic news providing a steady boost to investor confidence. In sterling terms, UK equities rose more than US equities over the quarter, as the US suffered from currency weakness. Within the UK, returns diverged considerably at sector level. The weakest areas were forestry and paper, aerospace and defence and insurance sectors. Steel, IT hardware and healthcare continued to give the best returns.
The Prudential UK Growth Fund performed in line with its peer group over the fourth quarter. However, it did underperform the FTSE All-Share Index. Underperformance here is primarily because of stock selection. In particular, a large position in GlaxoSmithKline hindered returns as this stock gave a disappointing performance. The company suffered from a poor response from analysts to an eagerly-awaited research day, and has also encountered difficulties with obtaining approval for several new products. The other major detractor was retailer and newsagent WH Smith, which fell back at the very end of the quarter after a profit warning sent its share price tumbling by 25%.
On a more uplifting note, positive returns were boosted by holdings of mining stocks Lonmin and Rio Tinto, which both performed extremely well. The mining sector has been buoyant in recent months, rising around 20% over the fourth quarter. This increase was because of strong commodity prices, which resulted in a resurgence of investor interest in the sector. A weak US dollar has also stimulated demand for precious metals such as gold and silver, which has further contributed to share price rises in the sector. Finally, the top positive contribution to returns was our holding in Granada, which continues to be buoyed by news of its approved merger with Carlton Communications, which will go ahead early in 2004.
Investment outlook
2003 saw a welcome recovery for UK equities. We are hopeful that this recovery will continue into 2004. However, the UK equity universe remains highly sensitive to external influences. In particular, the US remains the driving force in terms of global equities, and so investors will continue to be particularly sensitive to US economic data and profit forecasts. Currency also remains a key concern, as the US dollar still appears weak in comparison to the euro. In terms of the anticipated future performance of the Prudential UK Growth Fund, we remain optimistic about long-term prospects and believe that our emphasis on good quality companies, with strong financial characteristics, will prove rewarding to shareholders.
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Prudential UK Growth comment - Jun 03
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Wednesday, 13 August 2003
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Fund Manager Comment
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As a war in Iraq grew imminent, markets fell towards the end of the first quarter, hitting a year low on 12 March. However, since then share prices have risen considerably, as the speedy military solution in Iraq gave a much-needed boost to investor confidence.
The Prudential UK Growth Fund has been performing in line with the FTSE All-Share Index since the equity rally began in the middle of March. As its name implies, the Fund focuses on attractively valued companies that are consistently able to grow sales, earnings and dividends. Performance will be poor when stockmarkets experience a downturn as investors become cautious and inclined to focus on negative factors rather than potential upside. However, when markets rise the Fund is well placed.
On a sector level, financial and manufacturing sectors have been the major beneficiaries of the market rally since March. This reflects their greater ability to profit from economic recovery than more defensive areas such as food producers or utilities. Healthcare group SSL International was the largest contributor to the Fund over the quarter, its share price rising nearly 50%. The fund's overweight exposure to banks was particularly beneficial with Barclays, Royal Bank of Scotland and Close Brothers all contributing positively. We subsequently increased our position in this sector to make the most of growth.
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Prudential UK Growth comment - March 2003
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Friday, 25 April 2003
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Fund Manager Comment
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The first quarter of 2003 proved very volatile for UK equities as during the early stages of the quarter there was considerably anxiety over Iraq, coupled with fears that insurers would have to sell equities to avoid breaching solvency requirements. February brought some relief, as investors were more willing to take advantage of low valuations. The overall negative trend re-emerged in March, despite a brief rally due to optimism about a quick and successful war, which proved premature, causing investors to again adopt a more cautious approach. The best performing sectors were Household Goods, Construction and Leisure stocks, which were up slightly or unchanged, while the weakest areas were Electronic & Electrical Equipment, Life Assurance and Insurance, with declines of 20-40%.
The Prudential UK Growth Fund was helped by a holding in Home Improvement Retailer Kingfisher, which announced that its full-year earnings beat analyst expectations. Another contributor was Mitie, which provides cleaning and catering services to businesses. The firm is benefiting from increased demand among clients for several services from one source. Other contributors included Chemicals firm ICI, Transport group National Express and Scottish Power.
On the negative side, performance was held back by a position in Healthcare firm SSL International, which warned that revenues would miss targets. Another detractor was Venture Capital firm 3i. The company is experiencing a decline in the amount of cash it generates on selling investments. Low exposure to Six Continents also hurt relative performance. The company plans to spin off its bar unit and speculation over potential suitors and prices has led its share price higher. Brewer Scottish & Newcastle, which expects lower earnings this year because of restructuring costs and reduced demand at its UK pubs, was another detractor.
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Prudential UK Growth comment - September 2002
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Wednesday, 30 October 2002
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Fund Manager Comment
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The third quarter of 2002 was mixed for UK equities, with sharp drops in the FTSE All Share Index in July and September outweighing the effects of a temporary rally in August. The lack of investor confidence experienced in the second quarter continued in the third, with investors unwilling to take risks. Defensive stocks such as health, beverages, food producers, tobacco and electricity were the least badly affected in a difficult market. Apart from personal care, which showed a slight increase, all sectors were down over the period, with steel, insurance, life assurance, aerospace and IT taking the biggest losses.
Against this difficult market, the Prudential UK Growth Trust benefited from an overweight position in defensive sectors such as beverages, gas and transport. An underweight in aerospace, investment companies, construction and electronic equipment also contributed. However, these positives were offset by a large exposure to support services, banks and life assurance, which continued to be heavily hit by the overall decline in UK equity markets. In addition, the Trust was hurt by underweight holdings in defensive sectors such as tobacco, personal care, retail, food producers and processors, which all outperformed the market. High exposure to life assurance firms Prudential and Aviva, as well as to media companies UTD Business Media and Granada, hurt the Trust. On the positive side, overweight positions in individual defensive stocks, such as gas distribution company Lattice Group, construction company Persimmon, Imperial Tobacco, drinks firm Diageo and electricity company Scottish Power contributed. P&O Princess Cruises also made gains due to market expectations of a takeover.
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