Manufacturing output surprised on the upside in February, rising 0.8 per cent and nearly doubling economists’ forecasts. This followed a 1.9 per cent drop in January. McClure (pictured), manager of the five crown-rated Unicorn UK Income fund, says the declining value of sterling against the euro will allow firms to export goods more easily.
"I’m very positive on manufacturing and I think they’ll run for quite a while. These things tend to run for a lot longer than people think. In essence, I think they’ll have a five-year run," he said.
From an income point of view, the manager is expecting yields of more than 3 per cent from manufacturing firms and says there is a lot of scope for dividends to grow in the sector.
McClure is particularly positive on the auto manufacturing industry and says BMW, Toyota, Jaguar and Land Rover have posted record profits in recent months.
The FE Alpha Manager is not banking on demand for the beleaguered UK consumer, but says he is bullish on developing economies such as India, Brazil and China, which are seeing growth in their middle classes, in turn ramping up demand for luxury goods from the West.
"I’m cautious on the UK," he said.
The manager says a major play in his five crown-rated fund is global demand for UK products, but he is avoiding anything on the UK high street and is even more averse to the house-building sector.
"I’m very, very nervous of the entire house-building market," he said. "There’s no way we’re changing our stance on high street retail because they are vastly overbought at the moment."
McClure has picked up two retail stocks since the start of the year – cinema chain Cineworld, which is now in the portfolio’s top-10 holdings, and UK-based car dealership chain Lookers – for stock-specific reasons.
The manager says he is also avoiding commodities because they are too volatile and dependent on wider macro factors, even though there may be some good opportunities in the sector.
"I wouldn’t be in commodities because I’m not going to try to predict Chinese demand for anything," he said. "I’d be quite nervous because they’re so up and down."
McClure adds that there are a couple of headwinds on the horizon, not least of which is the tenuous political situation in North Korea.
"If the North Koreans do something crazy like launch a missile at the US, then the markets are going to go down. In the short-term, that isn’t going to be good news," he said.
However, he says the biggest issue for UK investors is still Europe.
"We’ve still got Europe to sort out. We can sweep the dust under the carpet now and again but it’s still there," he said.
McClure says another European sovereign bailout would send markets scurrying back to their holes – frightening investors away from the region.
"No one understands what’s going on in Cyprus," he continued.
"Basically, [the Cypriots’ money] is been nicked. I don’t think people have really got their heads around that."
He adds that he is nervous about the repercussions from southern Europe, and says the banking fiasco in Cyprus may have set a dangerous precedent for countries such as Portugal and Greece.
McClure’s Unicorn UK Income portfolio has more than tripled in size in the last year.
The fund has also eclipsed the crucial £100m mark – meaning it is likely to appear on more platforms, thus increasing the likelihood of further inflows.
However, the manager says he is still a long way off from soft-closure and that he will review liquidity in the portfolio when it reaches £500m in size.
At the time of writing, it has £129.7m in assets under management (AUM).
The fund is number-one in the IMA UK Equity Income sector over three and five years, and second over one year.
Over the last five years, the fund has returned 109.21 per cent compared with 31.45 and 29.43 per cent from the sector and index, respectively.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund is yielding 3.28 per cent, according to FE Analytics.
Unlike the majority of managers in the UK Equity Income space, McClure steers clear of large, blue chip dividend-paying companies such as GlaxoSmithKline, BP and Vodafone, preferring to invest further down the market cap spectrum.
Among the fund’s top-holdings are UK investment management and financial planning firm Brewin Dolphin, support services and construction company Interserve and industrial maintenance, repair and overhaul products firm Brammer.
The fund requires a minimum investment of £2,500 and has ongoing charges of 1.59 per cent.