Speaking to Portfolio Adviser, Felton said he intends to vote in favour of AbbVie’s proposed takeover of pharmaceutical company Shire later this year. He also estimates an 80% probability that Shire shareholder support will be sufficient to get the deal through.
Shire is Felton’s eighth largest holding in his UK Growth fund, accounting for 2.67% according to FE.
His fund is also a major shareholder in engineering company Kentz which agreed last month to a sale at a hefty premium to US suitor SNC-Lavalin. Again Felton intends to support the deal at the meeting next month and expects other shareholders to do so in sufficient numbers to get it over the line.
The cash held by Felton’s fund stands now at around 6.5% however he estimates it will rise to approximately 10.5% when the money from the sales of the Shire and Kentz stakes is booked.
This plays nicely into his current outlook and strategy as Felton believes there is complacency in financial markets regarding the numerous macro threats which are developing around the world. “Earnings aren’t really going anywhere and shares prices have been driven by re-ratings and QE,” he said. “We don’t know how markets will react to the end of the QE experiment and there are levels of geopolitical activity around the world not seen since the 70’s,” he added.
Felton also noted that as seen last week with Portugal’s Espirito Santo, there could be a number of further casualties to come among banks in peripheral Europe.
In light of all this Felton believes a prudent step over the coming months for equities managers is to bolster cash positions. The windfall from having two attractively priced takeovers involving companies he owns in the space of a few months will achieve this for his fund in a very efficient manner.
Felton said he would be very comfortable sticking at around 10% cash but would be willing to reinvest some of the newly realised liquidity should good opportunities emerge.
Defensive, valuation driven stock-picking is the order of the day according to Felton, with strong balance sheets key. Resources companies are a good option Felton said, while consumer staples may be best avoided in most cases.
