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Income pair drop Sainsbury's for Tesco in £3.7bn fund

Income pair drop Sainsbury's for Tesco in £3.7bn fund
 

Income fund managers Clive Beagles and James Lowen have sold the last of their shares in Sainsbury's (SBRY) from their £3.7 billion JOHCM UK Equity Income fund and bought into supermarket rival Tesco (TSCO).

Beagles and Lowen have been reducing their stake in Sainsbury's since August, after their review of the supermarket's planned merger with Asda revealed more downside than expected to a rejection of the deal.

In their latest update to investors, they said they had now sold the last of their shares in the supermarket.

'We have noted in the last few monthly reports that we had been reducing our position in Sainsbury’s,' they said.

'This was partly a function of its performance (after the step change up in the share price following the announcement of its proposed merger with Asda) and partly a function of lacklustre operational performance. We sold the residual position during October.'

The managers have meanwhile started to build a position in the shares of rival Tesco, after a 20% slump in its shares around its first-half results last month.

'This created the opportunity to enter the stock on a valuation more in line with other parts of the fund,' they said.

'As well as the UK turnaround, the opportunity in the wholesale segment (after the acquisition of Booker), the joint purchasing arrangements with Carrefour and the strength of the balance sheet, which will likely lead to strong ordinary dividend growth and special dividends, are the key attractions.'

The managers also added to their stake in Forterra (FORT) as rival income manager Neil Woodford continued to sell down his stake in the brick maker.

Woodford, who owned over 19% of the shares at the beginning of May, cut his stake from 11.7% of the shares to less than 5% last month, 'which cleared a long-running overhang', according to the pair.

The fund managers meanwhile highlighted a potentially 'seminal moment' for their bank holdings. They own Lloyds (LLOY), Barclays (BARC), HSBC (HSBA) and Standard Chartered (STAN) in their fund.

'All four of our bank positions responded well to their results and were up on the release day,' they said. 'This is the first time we can remember this happening since the end of the financial crisis.'

Beagles and Lowen have returned 28.9% on their JOHCM UK Equity Income fund over three years, the sixth best return of 79 funds in the Investment Association's UK Equity Income sector.

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