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Video: Richard Plackett - Blackrock UK Special Situations

Robert Harley Robert Harley
20 February 2014

In this video Bestinvest’s Senior Research Analyst, Rob Harley, speaks to Richard Plackett, manager of the BlackRock UK Special Situations fund. Also acting as BlackRock’s lead strategist for UK equities and head of one of the largest dedicated UK small and mid-cap teams in the City, Plackett oversees more than £4.5 billion of investor money across all of his mandates.

They discuss why, according to some estimates, the UK has entered 2014 expected to be the fastest-growing major European economy. But with stimulus packages being wound down in the US and economic rebalancing acts being played out in China, Plackett also offers his views on the impact that reverberations from these global economic heavyweights could have on the UK’s recovered ground.

Plackett emphasises how the UK’s economy does not accurately reflect its markets, with multi-national companies drawing the majority of UK company earnings from overseas. In explaining the structure of his BlackRock UK Special Situations fund, Plackett offers useful insights into how he aims to benefit from the promising potential for the UK’s future performance, and avoid the possible threats to its success.

Transcription

Rob Harley (RH): For January’s Bestinvest webcast we’re talking to Richard Plackett, head of BloackRock’s small and mid-cap team, and portfolio manager on their best ideas, Blackrock UK Special Situations fund. Richard’s team currently manages just over £4.5 billion across all their mandates, placing them amongst the largest dedicated UK small and mid-cap teams operating in the city. In addition to his responsibilities as head of team and portfolio manager, Richard also acts as lead strategist for UK equities at BlackRock. Richard, welcome to Bestinvest.

Richard Plackett (RP): Hello there

RH: With your UK equity strategy hat on can you start by outlining how you expect US tapering and attempts by the Chinese authorities to rebalance their economy might shape investor sentiment and the global economic cycle going into 2014?

RP: It’s a very interesting question because obviously because however attractively values equities are compares to other asset classes you do need a minimum of global economic growth ordinarily for people to want to buy equities. What we saw last year actually was economic growth forecasts changing very little, but with positive deltas in the developed world in places like America and the UK and negative deltas in some of the countries in the emerging world where growth expectations disappointed. So net that all roughly balanced out and you had a world still with consistent but relatively slow growth. That’s the environment we expect at BlackRock for 2014. There are these issues like tapering to get out of the way. Bear in mind that policy printing money is always better at preventing things from going bust than actually stimulating economic activity, but it has led to their being a lot of liquidity in the world and that might well be slowly withdrawn in America albeit in Japan where the reverse is happening. Then there are issues in certain developing markets and you comment on China. Clearly the world needs economic growth in China to be reasonable as it’s such a big economy these days compared to the size it was 10 years ago. Add it all up and we think you are still in a relatively slow growth but positive growth world.

RH: Now the outlook for UK equities through 2014 seems to be relatively bullish. To what extent do you believe this outlook is justified? And how important do you think it is for equities to deliver this year, given the strong run we’ve experienced for equities through 2013?

RP: I think it’s very important to look at the type of bull market we had in 2013 in equities which was mostly about rerating equities at the start of the year - very attractively valued relative to bonds and other assets – and they rerated and gained ground through the year. But the earnings growth of the market was very subdued, in fact very low indeed, so I’m convinced that in 2014 for equity markets to go up it’s going to be more about earnings and we think it’s important to focus on those kind of positions that we think can grow their earnings in a relatively slow growth environment. When looking at the UK market it’s important to bear in mind it’s a global market, so the UK economy is important but less than 25% of the earnings of the market come from the UK. More than 75% comes from overseas so global outlook and the global economy’s very important too and our fund, like many others, will be invested in a mixture of UK domestic shares and global shares.

RH: And moving on to your Special Situations fund, can you briefly summarise how the fund is structured and the investment philosophy driving the mandate?

RP: The fund is designed to try and achieve capital growth, with big emphasis on small and mid-cap investing. As you said I head up the small and mid-cap team at BlackRock, a team of six individuals with more than 90 years’ experience in small and mid-cap investing and the fund accordingly has a big emphasis on small and mid-cap investing indeed I think we have it written into our objective that in ordinary circumstances we’ll always be at least 50% small and mid-cap and that’s what we’ve stuck to while I’ve been running the fund. In terms of the type of smaller companies we try and buy, we’re growth orientated; we look to buy companies that could turn themselves into larger organisations, and we invest in FTSE 100 companies too where we think they offer good value . So the broad philosophy of the fund is capital growth, but very much based on small and mid-cap investing.

RH: Could you also outline the current key themes across the portfolio and the sort of companies you are currently invested in and at the same time tell us the sort of companies you are avoiding?

RP: There are some consistent themes that have run through the fund since I’ve been running it which are to own companies which have got certain characteristics in common: strong management team; good balance sheets; good cashflows; barriers to entry and good track records and we try to focus the fund on those shorts or shares. Right now I think there’s a particular point that it’s important to own companies that have invested during the credit crisis. We had a credit crisis as you know for quite some years and during that time it was only well financed companies that could carry on investing and we think we’ve seen our big difference in those companies whose market-share has improved as a result of the credit crisis and those whose market positions have deteriorated.

RH: And in terms of parts of the market in particular that you don’t like at the moment?

RP: I think one could argue, whatever one thinks about the value of equities, that bonds look quite expensive relative to history and clearly therefore parts of the market that historically have correlated with bonds now look relatively unattractive and we’re underweight on many of those sectors or have zero weightings in them.

RH: Lastly, do you have any final messages you want to pass on to our prospective investors regarding fund positioning or the outlook for equities in general?

RP: I think equities, despite their run last year, still look attractive relative to other asset classes but last year the market went up without significant earnings growth and from here I think earnings growth is going to be much more important. The team and myself are dedicated to finding companies that can grow their earnings in a relatively slow growth world.

RH: Richard Plackett, thank you very much.

RP: Pleasure.

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