One of the risks faced by managers is getting too close to companies and they can therefore fail to ‘see the wood for the trees’. But by the same token others can ‘throw the baby out with the bath water’.  Clichés indeed but what I mean is that it’s essential for managers to understand the companies they invest in and why and not to get distracted.  The robust discussions within the UK equities team ensure clarity in why we hold the stocks we do.

The first stock to mention is engineering and support services group Babcock. They do a lot of work with the government and MoD and to say budgets are stretched would be an understatement.  But this will also provide opportunities. For example, they maintain the Met. Police’s vehicle fleet, and other public sector vehicle fleets, so stand to benefit from increased maintenance if new purchases are deferred.  They also service and maintain the four Trident submarines, along with the rest of the submarine fleet. So if decisions on replacing both the Vanguard and Trident vessels are deferred for budgetary reasons, additional servicing and refitting will be needed. If not, they are likely to be involved in new construction.  Outside of the defence sphere, the decommissioning of nuclear power plants provides another solid income stream. So I think the shares have been harshly treated by the market, which didn’t take time to understand the company.

Imperial Tobacco is another long-term favourite, where the share price has suffered.  A good management team has nearly completed the integration of Franco-Spanish tobacco group Altadis.  With its resilient profitability and excellent cash generation debts levels are coming down rapidly and we expect Imperial to announce their intention to increase their dividend pay-out ratio significantly.

Both these stocks are held in my F&C UK Equity Fund.

As is Inmarsat, where I’ve just taken part in placing of stock.  This satellite operator has a truly global reach and strong growth story in the rapid expansion of data transmission. They are also the market leaders in the provision of mobile satellite services to the shipping industry.  One of its particular attractions for me is a low correlation to most other stocks in the portfolio providing good diversification benefits for the Fund.

In each case the shares are very attractively valued for the potential they offer.