Standard Life Investments Ed Legget has shifted his attention to UK equities with overseas exposure, eyeing up opportunities in emerging markets, commodities and even Europe.
The manager of the £635.6m SLI UK Equity Unconstrained believes there is an opportunity in these areas to buy good quality companies at low multiples with re-rating potential.
Legget says he has been looking to these areas of negative sentiment for new opportunities, following signs that some UK consumer stocks could disappoint.
The fund continues to hold UK domestic names including Howden Joinery, Taylor Wimpey and Lloyds but Legget says the stocks he has been buying most of over the past three months include Asian focused bank Standard Chartered and miner Rio Tinto.
He says: “In my view the stockmarket is generally pretty optimistic on the UK consumer and a lot of this optimism has been priced into share prices already.
“The opportunity in UK consumer stocks was there 18 months ago when everyone was desperate to get overseas earnings. This is not to say that share prices cannot go higher but there might be some disappointment if things do not get better as fast as the share prices suggest.”
The prospects previously offered by UK domestic stocks can now be found elsewhere in areas like emerging markets, argues Legget, where negative sentiment surrounding the region offers the chance to buy quality companies such as Standard Chartered.
He says: “Sentiment is heavily against these stocks. However this maybe gives you the opportunity that UK domestics had two years ago to buy good companies with strong balance sheets on very low multiples, when everyone is bearish about them.
“Standard Chartered is an example of a quality long term holding, yet today it is trading on a p/e of less than 10. But if and when people get a bit more positive about emerging markets it could be up 50-70 per cent.”
Although not bullish on Europe, Legget does hold a significant number of UK equities with exposure to the region on the belief that they can ”surprise positively”.
He says: “Expectations are very low but the economic data is improving from a low base so I think there is scope for some companies with European exposure which could actually surprise positively.”
Examples of companies he holds with European exposure including packaging companies RPC and DS Smith as well as Synthomer. He adds: “These are all interesting ideas that are also currently on low multiples.”