Market Report: Flagship fund hopes keep Man on firm footing

The hedge fund group Man was in focus as the FTSE 100 crept beyond the 5,600-point mark last night. The stock closed 5.6p higher at 251.5p after Bank of America Merrill Lynch issued a defence of the group's flagship AHL fund, which lost money in 2009.

The broker said that, contrary to those who assume that AHL is "broken", the fund's recent performance is "consistent with its historical record, and if history is a guide, it should deliver performance fees" by the end of 2011. The recent bout of weakness came against the backdrop of directionless capital markets, Merrill explained. And though there is little visibility on when a "trending market" will appear, the evidence suggests that when it does, AHL should bounce back "relatively quickly".

"As a trend develops, so AHL will increase risk, leading to greater returns," the broker said. "That is why we continue to factor performance fees into our [estimates for 2011]. If AHL has hit a nadir, there is every reason to believe that by March 2011 it will deliver performance fees ... The main message ... though, is a simpler one. It is just that whilst there is nothing particularly enjoyable about AHL's recent performance, nor is there anything odd about it."

Overall, the FTSE 100, up 6.96 points to 5,606.72, closed at a new 18-month high, while the FTSE 250 rose to 9,786.39, up 11.67 points, last night. Strength in parts of the mining sector underpinned the gains, with commodity markets continuing to firm up on the back of Friday's US jobs data. Sentiment also received a boost from reports suggesting that Dubai World was progressing towards a debt-restructuring plan. BHP Billiton was amongst the strongest of the miners, rising by 26p to 2,233p, while Fresnillo gained 1.5p to 848p and Antofagasta added 1p to 994p.

Xstrata was one of those that failed to make any headway, easing by 8p to 1,179p despite a push from UBS, which suggested that commodity markets may be on the "verge of restocking". "In the past week we have seen cancelled warrants spiking up and LME [London Metals Exchange] inventories being drawn down," the broker said, reiterating its "buy" stance on the stock. "Increasing anecdotal evidence is that the market is overestimating copper stockpiles in China and demand could remain strong. The end of destocking and the start of restocking could cause demand growth in 2010."

The oil services group Petrofac fared well, gaining 44p to 1,116p on the back of better-than-expected full-year results. Elsewhere, the insurance group Legal & General added 2.05p to 78.3p after Nomura reiterated its "buy" stance.

The broker said that it expected the company to post strong second-half results later this month, while better disclosure about the linkage between cash generation and profits on the basis of IFRS accounting rules should aid investors in modelling earnings more accurately. In the wider sector, Resolution, up 3.4p at 72.15p, was in focus ahead of the upcoming index review, with the insurance-focused buy-out vehicle being mentioned as a possible candidate for demotion to the FTSE 250.

Deutsche Bank supported sentiment around United Utilities, which gained 2p to 553.5p after the broker reiterated its positive view. "UU now trades at a 3 per cent discount to regulatory asset value, offering an attractive entry point into the stock," Deutsche said, adding: "The stock should benefit from improving macro drivers: a lower cost of capital, decreasing fears of deflation and a more positive final regulatory determination."

Over in the banking sector, Barclays featured in the Footsie rumour mill, with the stock gaining 3.6p to 345p amid vague speculation that the group may be raising capital from an unnamed Chinese investor. Traders were unconvinced by the chatter, and questioned the need for a fund-raising. In the wider sector, Standard Chartered rose by 15.5p to 1,776p after Société Générale switched its stance to "hold" from "sell". "Until now, we questioned Standard Chartered's ability to sustain WB [wholesale banking] revenues, to control costs and to avoid sharply rising impairments in Asia. The full-year result proved us wrong," the broker said, upping its target price for the stock to 1,550p from 1,050p.

On the downside, AstraZeneca was under pressure following its Recentin cancer drug failed in a late stage trial. As a result, the stock fell by 42.5p to 2953p, though Panmure Gordon advised investors to buy on the weakness. "It should be noted that a second [phase III] trial is still ongoing and could well emerge with positive data, so we are not making any adjustments to forecasts yet," the broker said, reiterating its "buy" stance.

Further afield, the engineering group Tomkins was 1.8p stronger at 217.8p after Numis upped its estimates on the back of a detailed analysis of the recent full-year results. "The results themselves were 10 per cent ahead of our expectations, driven by a strong end to the year as automotive production ramped up and cost savings were delivered," the broker said, raising its forecasts by 25 per cent for 2010 and by 20 per cent for 2011.