Skip to the content

FE Alpha Manager Himsworth’s long-term themes for the changing macro environment

08 August 2017

The Fidelity International UK equities manager reflects on the areas he is investing in in anticipation of long-term macroeconomic shifts.

By Jonathan Jones,

Reporter, FE Trustnet

Industrials as a currency play, the evolution of online and changing demographics are long-term themes FE Alpha Manager Leigh Himsworth has identified for his four crown-rated Fidelity UK Opportunities fund. 

Last week, the manager outlined why the UK economy is in better shape than many believe and the short-term investment themes he is playing.

And on a longer term view, the market also has pockets of opportunity, which the manager outlines below.

 

Industrials

Himsworth highlighted that one area he is looking at in the medium-to-long term are sectors that can benefit from the recent fall of the pound.

Sterling plummeted after the UK voted to leave the EU last year and has yet to recover, down 16.56 per cent over the last two years, as the below chart shows.

Performance of sterling vs dollars over 2yrs

 

Source: FE Analytics

As such, firms with overseas earnings have been able to outperform, with the FTSE 100 providing better returns than the more domestically-focused FTSE 250.

One area that benefits from this shift is the industrials, with the £110m Fidelity UK Opportunities fund 22.2 per cent weighted to the sector – 10.7 percentage points more than its benchmark.

“As we get slightly further out in terms of the ideas, industrials are a way to play sterling because most of them sell overseas: they’re global and very focused, niche players, typically,” the manager said.

The sector is also a way to play the change from monetary stimulus to fiscal stimulus, with governments around the world recognising a need for this shift.

“We are already seeing it in the UK with Hinkley Point, Crossrail, HS2 all getting going as well as road programs so the fiscal stimulus is there,” Himsworth said.

The manager owns paper and packaging maker Mondi, manufacturing company acquisition specialist Melrose and emissions tester Ricardo.

“Melrose has 85 per cent earnings in the US and is very much involved in US construction at the moment so a great way to play that,” Himsworth said.


“Meanwhile, Ricardo is a little bit of a technological hedge in the portfolio, heavily involved in automotive emissions testing which is clearly flavour of the month with diesel [cars coming under pressure].

“But they also work significantly with big motor manufacturers on electric vehicles and battery technology as well in addition to consulting on new railways and light passenger transport.”

 

Online evolution

Online is where the Fidelity manager said he has tried to be different to his peers, with a 4.9 per cent weighting to the sector (4.1 percentage points more than the benchmark).

“What drives me is trying to find interesting companies before other people get to them. One theme I am very aware of in the portfolio is that the online change that we’ve seen,” he said.

“It has been very evolutionary. If you wind the clock back 10 years most people’s first transactional interaction with the internet was very much focused on price.

“So you went on the internet to find the cheapest tickets or whatever it was and it was very functional.

“As time has passed the relationship has changed significantly so that as we’ve become happier with using different websites price has fallen down the ranking and service is very much more important and more recently experience is more interesting as well.

“We need to keep abreast of what is happening with that and buy into the winners in that environment.”

One company he has backed is Paysafe, the £2.8bn online payment protection provider, which has been on a strong run in recent years.

“Whilst the banks are very good they plod in terms of new ideas and so these guys have been very much at the forefront of that,” Himsworth said.

Performance of company over 10yrs

 

Source: FE Analytics

The share price slumped towards the end of last year as there were suggestions of potential short interest benefiting from any weakness in its share price, though the company was quick to dismiss this.


Since then, the company has rocketed, up 80.31 per cent, after a £100m share buy-back program in reaction to the movement and a bid from combination of CVC Capital Partners and Blackstone that valued it at £3bn.

 

Demographics

The final part to Himsworth’s long-term themes is demographics: be they an ageing population, changes in technology, healthcare improvements or taxation and interest rate changes.

One such company in this segment is Saga, the service provider for people aged over 50. The firm provides services including travel, insurance, as well as financial services.

The FTSE 250 company said in its most recent update that its core insurance and travel businesses have continued their good start to the year despite the changing political and economic environment.

The manager also highlighted wealth management firm Premier Asset Management as a key thematic investment in the portfolio.

On wealth managers, he said: “Quite simply, in a relatively low interest rate environment and high personal tax environment people need good quality levels of advice.”

Since its launch in October last year, Premier Asset Management is up 26.3 per cent, as the below shows.

Performance of company since launch

 

Source: FE Analytics

The stock launched on the Alternative Investment Market (AIM) raising around £63.7m, giving the firm a market capitalisation of £139.7m.

The difference in size between all the companies outlines the manager’s approach to investing in themes, he said.

“What I’m trying to do is identify themes in the fund, invest in a number of different ways to play that and get various companies in different stages of maturity,” Himsworth said.

All companies enter the portfolio with a weighting of around 2 per cent regardless of size, with the Fidelity UK Opportunities fund 35.6 per cent invested in FTSE 100 names, 34.6 per cent in FTSE 250 companies and 16.5 per cent in FTSE Smallcap firms and 10.5 per cent in non-FTSE businesses.

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.