One of the principal themes running through the JPMorgan Claverhouse portfolio in 2014 was that of self-help. Given the tough economic backdrop, we thought this would be a characteristic of many successful UK companies.
In recent years Dixons has epitomised just how beneficial self-help can be to a company. Under the insightful leadership of Seb James, Dixons has transformed itself from a lowly regarded, high street vendor of electrical and white goods to the “go to” retailer, on both the web and high street, for all electrical and internet-related consumer devices.
The merger during the year with Carphone Warehouse was a strategic master-stroke which will consolidate their competitive advantage further. Despite a spectacular performance from the shares in 2014 we retain a significant holding of Dixons Carphone in the Claverhouse portfolio in the strong belief that there is yet more to come from this newly merged company.
We remain positive on the consumer sector as a whole. The recent precipitous fall in the oil price is likely to provide a boost to consumer spending in the new year and we expect our holdings in Restaurant Group, WH Smith as well as Dixons Carphone to benefit from this.
A recent new addition to the portfolio includes the fast growing pharmaceutical company Shire, which appears re-energised having escaped the clutches of Abbvie earlier in the year. We have also added another dynamic pharmaceutical company BTG which we think has excellent medium term prospects.
We expect many of the themes of 2014 to be relevant in 2015 too, namely low inflation, continuing low interest rates and, by historic standards, relatively low levels of growth. This will make for tough trading conditions for many companies and will expose those business models which are predicated on a more favourable economic backdrop.
However, for those companies that are well prepared for such challenging conditions and are led by executives who are prepared to be flexible and innovate with new products and practices, the rewards should be substantial.
We see increasing polarisation in stock market performance between those companies that can thrive in these testing conditions and those that cannot and consequently fall by the wayside.