Top manager backs oil stocks

STAR stock-picker John Dodd hopes to strike it rich with a handful of oil and mining stocks. Dodd, regarded as one of Britain‘s best fund managers, has also been buying into the recovery story at health and beauty retailer Body Shop.

Dodd‘s Artemis UK Smaller Companies fund is the best performing unit trust or Oeic from any sector over five years, according to fund analyst Trustnet. Dodd‘s fund has turned £1,000 into £4,467 in five years. The average UK smaller companies fund has returned just £1,533 over the same period and the British stock market as a whole has fallen around 15%.

Oil and gas exploration firms Premier Oil and First Calgary are the two largest holdings in the fund. Dodd says Premier‘s existing assets value the shares at 490p – a 20% premium on the current price. 'If any of its exploration comes through you can put another quid on that,' he says.

First Calgary floated on Aim at 52p last year. Since then the company has confirmed the discovery of oil and gas deposits in Algeria that could produce around 50,000 barrels of oil a day. The shares have powered to 310p. Dodd believes the company will also be able to tap into the benefits of a rising gas price. 'It‘s been rising for the last year but the stock market is only beginning to get interested in that story now,' he says.

Gold mining firms Peter Hambro and Avocet Mining also make the fund‘s top-five holdings. Small movements in gold prices are amplified in gold mining stocks, which is why Hambro shares have risen from 95p to 411p in the past year and Avocet shares are up from 15p to 70p.

The price of an ounce of gold has risen from a low of $260 in 1999 to $400 today. Dodd says he will be buying more gold-related shares. He believes a weakening dollar will spur more investors to seek shelter in safer assets.

Support services firm Mouchel Parkman is the other top-five holding. The firm has contracts to manage the maintenance of the M25 and major roads in south London. It is also in the running for contracts from Tube Lines for London Underground. 'It‘s an outright growth company,' says Dodd. Last month the company announced an annual rise in profits of 59% to £8.8m. The shares have risen 80% to 214p in the past year.

Dodd has also been a long-term holder of NHP. The firm owns and manages homes for the elderly. 'The ageing population means demographics support this stock,' he says. Dodd is not the only respected stock-picker to have backed NHP. Mark Hall, manager of the BWD Aggressive Growth fund, also revealed his support earlier this year.

Although Dodd is wary of stocks dependent on consumer confidence – he has sold nearly all his retail and house-building stocks – he continues to back City Centre Restaurants. The firm owns Caffe Uno, Garfunkel‘s, Chiquito and Frankie & Benny‘s restaurants. 'It does well in out-of-town shopping and cinema complexes, doing particularly well on big film releases,‘ Dodd says. He is also impressed with the new management and says a proposed merger with rival ASK Central makes the stock even more appetising.

Body Shop International does not make the fund‘s top 10 but it has been a recent buy for Dodd. He bought shares worth £1m around six months ago and bought an equal batch in recent weeks. Ignoring his bias against consumer stocks, a favourite retail analyst tipped Body Shop to Dodd based on its strong financial position and impressive turnaround in its international businesses.

The brightest star in the High Street back in the 1980s, Body Shop has struggled in recent years against growing competition from supermarket chains and other retailers.

The Artemis UK Smaller Companies fund charges 5% up front and 1.5% a year. A discount broker or fund supermarket will hand back some of the initial fee. The minimum investment is £1,000 or £50 a month.

Mark Dampier, head of research at independent financial adviser Hargreaves Lansdown, says: 'Artemis is a very talented group and John Dodd is clearly a talented fund manager. However, the fund may be becoming too large to easily handle.'

A victim of its own success, the £375m fund is larger than most small company funds. Dampier says this makes it harder to invest in market minnows. Investing just 1% of the fund could result in buying out some companies on Aim or Ofex. Therefore, he says, Dodd has been forced to invest more money in medium-size companies. Dodd denies the fund size has affected performance.

Dampier argues that investors looking for purer small caps exposure should look to such funds from Standard Life, Unicorn or UBS.