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Three sectors and funds/trusts that could benefit from the Election result

13 December 2019

Three sectors which may benefit from the result of the general Election, says Russ Mould, AJ Bell investment director, are General Retailers, Food Retailers and Travel and Leisure.

Mould says: “A strong pound decreases the value of the overseas profits generated by the multinationals of the FTSE 100 once they are translated back into sterling but a rising British currency could be well received by three stockmarket sectors in particular – General Retailers, Food Retailers and Travel and Leisure.”

This is reflected in prominent stock price rises for International Consolidated Airlines, Next, TUI, Dixons Carphone and AB Foods, he adds.

“This is because a strong pound may cap imported raw material costs for them and also tamp down inflation more generally, putting more money in consumers’ pockets on a real-term, post-inflation basis.

“In addition, a perky pound means it is cheaper to travel abroad than would have otherwise been the case, something which could benefit tour operators and travel agents.

“This is not to say that all of the challenges which face these sectors or their constituents will immediately melt away.

“Retailers must still be able to provide the right product at the right price and via the right distribution channels to succeed, to keep stock turn high and markdowns low, while the key players in the Food Retail sector must still confront the rise of the discounters.

“Within Travel & Leisure, the bookies are coming under ever-greater regulatory scrutiny and paying ever-higher levies and taxes, while the tour operator business is fiercely competitive and one where online disruptors are increasingly making their presence felt. Airlines may even face the most volatile environment of all, as they juggle EU open skies rules in a post-Brexit world, ferocious competition, the marked absence of customer brand loyalty and how movements in the oil price affect their cost base.

“Yet some firms are rising to these challenges and overcoming or even benefitting from them – such as Next and easyJet – and in many cases their shares are cheap on an earnings or yield basis after a period of marked underperformance.

“Since the EU referendum vote in June 2016, the FTSE 100 is up 15% and the FSTE 250 by 20%, while the General Retailers sector is down by 15%, Travel & Leisure up by 5% and Food Retail up by 47% (thanks largely to the rise and rise of Ocado).

Three funds/trusts

FundCalibre managing director Darius McDermott highlights three funds and trusts that investors may like to consider.

Fidelity Special Values

McDermott says: “Managed by Alex Wright, this trust is a prime candidate for value investors looking to tap into the unloved UK market. A contrarian investor, Alex targets companies which are exceptionally undervalued as a way of preserving capital as well as those where he feels there is a catalyst for growth in earnings. These catalysts can take many forms, such as a change in economic conditions or a change in management.”

LF Tellworth UK Smaller Companies

“This fund is run by two managers with an exceptional track record of investing in UK smaller companies. Paul Marriage and John Warren look for companies with a differentiated product, high margins, company management aligned with shareholders, and a market leading position. These companies will make up 75% of the portfolio, with the remainder allocated to value opportunities, like self-help stories.”

LF Gresham House UK Micro Cap

“This fund leverages off a wider team of some 50 investment professionals to take advantage of its private equity expertise to invest in some truly unexplored areas of the market. The fund invests in around 50 very small companies and manager Ken Wotton will hold successful investments as they grow in the future. Ken also avoids high-risk sectors such as oil, mining and property.”

 

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.

 

 

 

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