Company management across Europe and the UK seems unfazed by the Brexit outcome, according to Stuart Mitchell at SW Mitchell Capital.
The manager of the SWMC European fund is encouraged by strong Purchasing Managers Index data coming out of both regions, with eurozone manufacturing PMI at its highest level for five and a half years at the end of 2016.
Mitchell has identified three recovery opportunities across different sectors to take advantage of the current environment.
He says the banking sector remains the most significant cyclical position in his portfolio, comprising 11 per cent of the fund, with returns at Lloyds heading for pre-crisis levels.
“We continue to believe the market has failed to appreciate the benefits of stable financial margins, coupled with draconian cost-cutting and easing regulatory pressures,” he says.
“We are also bullish on Italian group Intesa Sanpaolo for the same reason. Elsewhere in the sector, we are also invested in Banco Popular and Commerzbank – banks in the process of disposing of significant amounts of non-performing assets in order to refocus on industry-leading core businesses.”
Another sector enjoying buoyant demand and limited cost inflation is the UK house builders, with Taylor Wimpey informing Mitchell that it is “as strong or stronger than before the referendum”.
With prime central London real estate still facing long-standing issues, Mitchell is also invested in Barratt Developments.
Finally French company Vallourec – a manufacturer of specialist tubes for the oil and gas industries – is undergoing a restructure in the face of a slowing sector, planning 5,000 redundancies across the group including 1,000 in France.
The manager says: “The combination of €750m (£634m) cost savings and a recent €1bn capital increase should allow the group to weather further volume declines. With prices already starting to firm up in the US, we imagine its shares could be trading on 1.5 times earnings as we approach the next peak in the cycle.”
He remains positive on his asset class as a “compelling long-term investment opportunity”.
Mitchell adds: “Importantly, our recent company meetings supported the headline data. Brexit is rarely mentioned in our numerous company meetings as a threat to the recovery.”