Recruitment companies, wealth managers and private equity businesses are some of the UK stocks that fund managers think have a good chance of strong performance when the market is on a more stable footing.
Many UK companies have had a tough year so far as inflation hit a 40-year high of 9.4%, adding extra expenses onto operating costs and limiting consumer spending.
Likewise, tighter monetary policy has added an extra hurdle to the challenges UK businesses face, with the Bank of England raising interest rates to 1.75%.
The FTSE 100 and FTSE All Share indices have still managed to make respective gains of 3.7% and 0.3% since the start of the year, but their growth is more subdued than usual.
They may be doing well when compared to other indices, such as the MSCI World, which dropped 3.9% so far this year, but sentiment is still on the negative side.
Here, Trustnet asks top UK fund managers which FTSE stocks they’re holding onto for when markets improve and which are likely to have a sharp rebound on the way back up.
Total return of indices over 2022
Source: FE Analytics
Hays
Chris Field, fund manager on the Liontrust Global Fundamental team, predicts a strong recovery from recruitment company Hays. Within the Liontrust UK Equity portfolio, Field has a 1.7% allocation to the company.
Its share price has fallen 16.8% since the start of the year, but Field has held onto the stock throughout 2022’s market volatility waiting for when valuations rebound.
He said: “For a company that over the last year has underperformed the FTSE All Share Index by 25% but seen profit upgrades of c. 25%, the shares are now discounting a lot of bad news.”
Share price of Hays since the start of the year
Source: Google Finance
Wage push inflation and skills shortages in the job market have been difficult barriers for many UK companies, but present a good opportunity for the recruiter which is now higher in demand.
Likewise, Field pointed out that Hays is not solely reliant on the UK market and is spread across a number of countries globally: the recruiter fills around 1,100 job vacancies every day on average across 32 countries, according to Hays.
Field added: “Hays may well prove more resilient in this downturn too as it could have greater structural tailwinds into the future, helped also by what should be a more resilient technology sector that accounts for 25% of the group.”
St James’s Place
Chris Smith, manager of the Jupiter UK Growth fund, is holding onto wealth management company St James’s Place for when markets recover.
It has dropped 27.4% since the start of the year as market volatility makes investors wary of investing their money – this year up until June, investors withdrew £5.9bn from equity funds according to the Investment Association.
Share price of St James’s Place since the start of the year
Source: Google Finance
However, Smith remains confident that short-term fears will not scathe its long-term performance, especially as an ageing population begins paying more attention to its pension pots.
Parliament forecasts that those aged over 65 will account for 24% of the UK population by 2043, many of whom will be need financial advice on how they can best utilise their savings for retirement.
He said: “The UK population is getting older and wealthier, but is generally under-saved for retirement and the ever-increasing complexity of financial planning means the need for advice has rarely been greater.”
St James’s Place has the infrastructure to grow its adviser base along with heightened demand, according to Smith, and he anticipates strong earnings the next five-year horizon.
3i Group
Callum Abbot, co-manager of the JPM UK Equity Core fund, has confidence in private equity firm 3i Group to stay robust through market volatility and come out stronger on the other side.
He has a 2.8% exposure to the company in the JPMorgan Claverhouse trust and a 0.8% allocation within the JPM UK Equity Core fund.
Its share price has fallen 15.9% since the start of the year, but 3i's portfolio of 89 companies across different countries and sectors could offer some appealing diversity when markets are uncertain.
Share price of 3i Group since the start of the year
Source: Google Finance
Likewise, Abbot said that 3i Group has chosen to strengthen its existing holdings this year rather than buying up lots of new ones.
Abbot added: “While many private equity companies have been doing bigger and more expensive deals, 3i has remained disciplined on valuation, doing smaller transaction and bolt on deals for existing portfolio companies.
“We believe this acute focus on valuation should help 3i enhance returns over the long run.”