Marcus Hankey, the manager of the Credit Suisse UK Thematic fund, is favouring some financials and consumer stocks for 2009 as he says pressures on these areas will continue to weaken.
In particular, dramatic interest rate reductions and falling commodity prices will mean banks and the consumer will have an easier time next year.
“The consumer was very hard hit by high petrol, gas and electricity, food and even clothes prices and I felt this was starting to reverse. Oil fell 75% from its $145 per barrel peak and hopefully utility bills will fall too, which will be beneficial to the consumer.”
He adds the London Interbank Offered Rate (Libor) has also come down by 3% and to reflect his view on financials he holds HSBC and Savills.
Hankey says HSBC is the strongest bank from a capital perspective and performed relatively well with other banks while Savills is a misconceived stock, which came on to the manager’s radar during the two-tier investment process.
The fund is run with a top-down and bottom-up process. First, observing trends or changes in the market and, second, identifying companies that are best placed to capture the change.
“Our process leads us to companies the rest of the market is overlooking. Savills is misconceived as a high-end estate agent operating mainly in London but it is also involved with property management, facilities management and financial services. It also has operations in Europe and the Far East, which mitigates the difficult market we have seen in the UK. This stock has outperformed the broader market by over 30%, year-to-date.”
Another theme on the fund, which Hankey defines as falling into the infrastructure spending segment, is the growth in consumers’ use of broadband and packages provided by subscription television services.
“There has been a 152% increase in the number of broadband connections in the past two years and a trend for mobile telephonic devices to converge with MP3 and PalmPilots to create iPhones and BlackBerrys. Also, pay-for-TV companies such as Sky or Virgin Media are offering broadband and fixed telephone lines as well as TV. We felt that service bundling entrenches the consumer to stay with that company.”
Hankey has invested in BSkyB and Vodafone to play this theme.
Although a controversial call in the earlier part of the year, Hankey says an underweight commodities position also benefited the fund’s performance.
At the start of 2008, he says, growth in developed economies was slowing and demand for commodities was beginning to reflect this. He says airlines were grounding proportions of their fleets and cutting capacity while mining companies were increasing capital expenditure to high levels to find more reserves.
Inflation had also become an issue in emerging markets where China saw levels not reached for the previous 12 years. Hankey adds: ”The inventories of aluminium on the London Metal Exchange have doubled whereas prices have fallen 39%, the inventories of copper increased by 60% but the price declined by 55% and the FTSE 350 Mining index fell 75% since May.
“So we observed slowing growth in developed markets, the inflation issue in emerging markets and miners increasing capex to take advantage of the higher prices. Demand fell and supply increased. Our negative view has been beneficial,” adds Hankey.