Premier Miton Diversified funds
Neil Birrell, Premier Miton’s Chief Investment Officer and lead manager of the Diversified fund range gives some examples of companies that could do well, in good economic times and bad.
For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
In favour; stocks for all seasons
The subject of this note was triggered by an email sent to the Diversified funds’ investment team by Jon Hudson, who manages the UK equity exposure within the funds with Benji Dawes. We have been keen on parts of the UK equity market for some time, but after the reaction to central bank policy measures where they held interest rates, Jon made a good point about not getting carried away.
Why?
The policy decisions from the Fed and the Bank of England at the start of November were expected, but still greeted with cheer by investors. But, of greater impact were their statements and what was read into them.
Firstly, the Fed went further than they have previously in hinting that we may now be at the peak level for rates. There was no chance of them actually confirming that and they left the door open to more hikes, but markets moved to reflect that view. Of course, inflation could stay elevated or even rise from here, but the signs are good; the economy is slowing nicely and inflation has moderated considerably.
In the UK it was a similar outcome, however, the reasons for the cheer over rates were driven by fears that the UK economy is being damaged by the high interest rates already and recession is looming; inflation is still too high, wages are rising, unemployment is up, the housing market is showing signs of stress and the overall picture is not good. So, investors are starting to bet that interest rates will start coming down in the second half of next year.
The reaction of markets was rapid. US Treasury yields fell and the FTSE 250 Index was strong. However, we have had false dawns before and we should remain cautious and vigilant.
Who?
Equity markets are very diverse and it is crucial to be invested in the right parts of them, whether that be region, sector or size and type of company. At the moment, with the economic uncertainty around, having a balance is important and holding companies that could do well in difficult economic conditions is a part of that.
The healthcare sector is a good illustration of that. In the Diversified funds we hold companies in the US such as Styker and Abbvie. Stryker develops, manufactures and markets specialty surgical and medical products, whilst Abbvie produces pharmaceutical drugs for specialty therapeutic areas such as immunology, chronic kidney disease, hepatitis C, women’s health, oncology and neuroscience. Unfortunately, demand for products produced by these companies is likely to remain strong.
In the UK, Jon pointed to these companies we hold which have traits that could hold them in good stead or be of benefit if the UK economy does head towards recession.
Telecom Plus operates under the brand Utility Warehouse (UW). It offers customers electricity, gas, broadband, mobile and insurance at a discounted price if they take up more than one service. In a similar vein, a name you will recognise, MoneySuperMarket offers one-stop-shop savings to customers across a wide range of consumer products.
Discounters in the retail sector tend to benefit as consumers trade down when money is tight. B&M Stores is a good example of this, as is AB Foods, whose name hides the fact that around half the company’s business is Primark! Target Corp provides the same opportunity in the US equity portfolio.
Finally, FRP Advisory is an insolvency practitioner; as economic conditions worsen, companies go bust. An unfortunate consequence, but a fact of life.
Across the range of Diversified funds we maintain a balanced approach to the equity portfolios. Whilst we believe we hold many attractive long term growth companies, we also understand that economic conditions are tough. Therefore, having companies that can benefit from that, or at least be hurt less, is a sensible move in our view. The positive market conditions since the central bank policy decisions may carry on, which would be great, but we are not out of the woods yet.
Out of favour; the magnificent five
At the risk of boring you, we still have little exposure to the very large US technology and communications companies that have become known as the “magnificent seven”. We have holdings in NVIDIA and Microsoft because of their AI exposure, but believe the others present too much risk at these levels.
Apple announced its fourth quarter profits on 2 November which showed that revenues had fallen for the fourth quarter in a row. We shouldn’t feel too sorry for them though, revenues were still $89.5 billion in the 3 months.
It has been a stock market darling for a long time with a constant stream of new products and high demand globally leading to soaring profits and share price.
