Leigh Himsworth, the manager of the Royal London UK Strategic Growth Trust fund, is betting on the winners of the recession. “For every bit of bad news, there is a good to balance it,” he says.
Although he looks at macroeconomic data such as GDP growth, interest rates and inflation, he focuses on changes in consumer behaviour. “If there is any evidence that people change their habits because of the current economic situation, this is an opportunity,” he says.
Himsworth, who has managed the fund since June 2006, looks for companies in growing industries, which can offer good balance sheets, generate cash and have strong management teams.
He says he tries “to avoid the disasters, companies with inappropriate levels of debt”.
Hilmsworth’s policy is always to hold at least 80% of the fund in FTSE Mid-250 companies. The figure is currently 89%, with the balance in small caps.
The £24.5m fund is weighted low in cash. “In the last few weeks, I had some good ideas, so I am happy to invest,” he says.
One of his biggest holdings is the online gaming stock 888. He says it has net cash, a proven management team and benefits from overseas diversification and widening access to broadband coverage.
“Another reason why I like it is because online gaming is increasing and regulation is generally improving in their favour,” says Hilmsworth.
As people switch to lower price goods and services in the recession, Himsworth is switching his focus too.
EasyJet, the budget airline, Greggs, Dominos and Primark are other favourites. He has longer-term holdings in some of these but says that the past six months, he has added more “winners of the recession” to his portfolio.
Apart from trying to find companies that succeed in the recession, Himsworth tries to find firms that benefit because their competitors are under pressure.
“Again, EasyJet is a good example because its competitors in Spain and Italy are under pressure. If people book their holiday, they want to buy their ticket from a company that will still be there in summer,” Himsworth says.
He adds: “I favour management teams which have a track record of buying underperforming companies and exploiting market weakness. A good example of this, and which is held in the fund, is Melrose, which recently purchased FKI [one of Britain’s best-known engineering groups].”
One of his “short-term winners” is HMV, which recently bought 14 former Zavvi stores at a heavily discounted rate. “HMV was benefiting [from the recession] because its competitors went out of business,” he says
Himsworth says that in this market environment, the key is to find “companies that can rely on their own [funds] rather than those that rely on their banks for survival”.