4th November 2013
Margaret Lawson, fund manager of the SVM UK Growth Fund outlines why UK business with a European exposure is a key theme for her portfolio.
“The global economy continues to grow and the outlook for the UK consumer is improving. The last 12 months has seen a good recovery in UK nominal take-home pay, with the private service sector particularly strong. UK consumer sectors have run hard this year. Although this recovery is not complete and we still like niche structural growth plays like SportsDirect, ASOS and Ted Baker – the best in terms of returns may have passed for now. Consequently we have taken some profit by top slicing some of our leisure and pub names, although we feel there is still upside to be had in holiday companies such as TUI and Thomas Cook, which have good European exposure.
“Europe will be a key theme in the coming months. The Continent has had its economic difficulties but with ongoing austerity curbing wage inflation and major cost cutting programs, many European companies are looking very competitive. If we start to see any pick-up in economic activity, these businesses are sitting on substantial operational leverage and could see earnings rise very quickly.
“Growth on the Continent won’t suddenly rise from zero to 3%, but a return to 1% or 1.5% would make many of these stocks compelling investments. We are therefore favouring exporters and businesses that trade with Europe. We also favour stocks which will benefit from a recovery in corporate expenditure. Our holdings include names such as Grafton, IMI, Spectris and DS Smith.
“Other sectors we are buying as cyclical recovery plays include banks, business services, and media – where ratings remain attractive and earnings are gathering momentum. To take advantage of increasing interest in growing areas of corporate spend we have introduced a diversified basket of technology stocks. These are performing well and include name such as WANdisco, Blinkx and Optimal Payments.”