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The Guardian: New Star UK Growth

Investment: Manager Stephen Whittaker is relentlessly upbeat about both banks and property shares, says Patrick Collinson
Saturday February 11, 2006
Don't fret about a slump in house prices – and ignore the doomsters on consumer spending. Instead, prepare for the FTSE 100 to smash through the 6,000 level, with shares in banks and property developers leading the way.
That's the forecast from the head of investment at one of Britain's biggest unit trust companies, New Star Asset Management. Stephen Whittaker is joint chief investment officer at New Star, recruited from Invesco Perpetual in 2002 to replace Alan Miller as manager of the UK Growth fund.
Mr Miller is currently entertaining newspaper readers with his appeal against a £5m divorce pay-out to his ex-wife, Melissa. But although he has been dubbed a “City tycoon” in some reports, his early days running New Star UK Growth were dismal.
The fund raised £185m at launch in July 2001, but Mr Miller piled into shares poised for an economic recovery – which failed to materialise. By the time he quit running the fund, it was ranked 248 out of 290 in its sector and had lost nearly a third of its value.
Mr Whittaker's reign has been more successful, with the fund up 123.7% since January 2003. Last year was only middling – his holdings in stocks such as Rolls-Royce and BAE Systems leapt ahead, but he missed out as oil companies soared. Investors who have enjoyed gushing profits at BP and Shell are heading for a fall, though, he believes.
“In 2006, I would expect to see a significant correction in oil and mining stocks. The much-vaunted collapse in consumer spending is unlikely. The negativity has centred on rising energy and resources prices, which are unsustainably high. I would not be surprised if UK interest rates fall early in the year, and this could boost consumer spending.”
He says the UK economy is essentially robust, with more jobs created in the year to November 2005 than lost, and wages beginning to rise faster than property prices. Lower interest rates will improve affordability, one reason he's a holder of property company John Laing and developers Barratt. He also likes lenders HBoS and Kensington.
British shares are generally cheap in comparison to US and European stocks, he says, which is one reason why so many UK companies are the subject of foreign bids. Most companies are meeting or beating profit expectations, and many are “awash with cash”. There has been a record return of capital to shareholders from share buybacks, plus cash has poured in from bids such as Telefonica's £18bn for 02 and Saint Gobain's £4bn for BPB.
That money has to go somewhere, and with fewer shares to choose from (what Mr Whittaker calls the “de-quitisation of the FTSE All-share) and money sloshing around, then the pressure on prices will be up.
His big bet is that, in such a benign environment, bank shares will forge ahead. Royal Bank of Scotland is his biggest holding, despite the fact that its share price has been flat for years. But don't bank on it staying that way.
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