141. Brazil and European real estate dominate the second quarter of 2021
Juliet Schooling Latter and Darius McDermott return to discuss the major issues impacting markets in...
Today marks my 51st week of working from home. When I left the office with a few files and some stationary “just in case we’re not back for a couple of weeks” on 12 March 2020, little did I know I’d still be sitting at my desk in the spare room a whole year later.
But after 12 months of walks, home schooling and a few more walks, we finally have a roadmap – or timeline – for a gradual reopening of the economy.
Things are also looking up for UK equities. Having been thoroughly unloved by investors for almost five years, the successful vaccine roll-out and Brexit resolution (of sorts) have re-awakened interest in our home market too.
According to Calastone’s latest Fund Flow index, February provided UK equity funds with the first positive net flows since May 2020, as investors added £145m to the asset class. This ended an eight-month run of consecutive outflows from the space totalling £2.2bn, which was second in duration only to the EU referendum period.
So as optimism in UK companies returns, how could investors make the most of the UK reopening? We use Boris’s four step plan to give some Elite Rated examples.
Much to the relief of myself and many other parents around the country, schools go back on Monday. Yes, just four more sleeps…
Going back to school – in September at least – is the third largest seasonal shopping event in the UK – behind Black Friday and Christmas – with parents collectively parting with almost £1 billion*. As we’re already half-way through the school year though, I imagine any out-grown shoes etc will be replaced by second-hand choices, especially as non-essential shops will still be shut.
One way of investing in education, however, is via Pearson, a holding in JOHCM UK Dynamic*. Manager Alex Savvides said at the end of January: “Quite remarkably, Pearson is the most shorted stock in the FTSE All-Share index, which meant much of its outperformance in the month came from the technical effect of short interest unwinding post the GameStop saga in the US. However, this masked the shares being up 8% versus the benchmark on the day of Q4 results following no further downgrades and +30% organic growth in Global Online Learning, ahead of expectations.”
And of course, picnics in the parks with one other person will also be allowed. Bring on those M&S goodies – a holding in Schroder Recovery*.
Hoorah! We visit someone else’s garden. Kingfisher Group (which owns B&Q) is an obvious example here. Although the shop has been open throughout this third lockdown, I imagine there will be a few garden and equipment upgrades happening, especially now spring is in the air. It’s a holding in Jupiter UK Special Situations*. Trex, the outdoor decking specialist and holding in LF Montanaro Better World*, could also benefit.
Organised outside sport also returns. Number one son can get off the Xbox and back on the rugby pitch. But should he get more injuries after a few months of inactivity, ConvaTec, another holding in JOHCM UK Dynamic*, could provide wound care for the injury prone…
This stage is a favourite among FundCalibre staff. And there are plenty of potential beneficiaries that have been holding out since last summer’s ‘Eat Out to Help Out’. Artemis Corporate Bond holds a bond of Mitchell & Butlers* – the owner of brands such as All Bar One and Harvester – and LF Gresham House UK Micro Cap owns shares in Loungers, the café and bar operator. BMO European Real Estate Securities, meanwhile, owns Unibail-Rodeco-Westfield shopping centres.
Gyms also reopen at this time. Paul Marriage, co-manager of TM Tellworth UK Smaller Companies, told us which gym group he preferred and why in this recent podcast:
Staycations are also allowed at this point – just in time for the second week of the Easter holidays. Halfords, a holding in Fidelity Special Values* could do well from bike and camping equipment sales, while Thule, a holding in LF Montanaro European Income*, is of course a roof rack maker. And then there’s a personal favourite AirBnB, a holding in Scottish Mortgage Investment Trust**.
With more than one friend getting ready to dust of their guitars ready for a jamming session, Gear4Music, the music store with pretty much everything a musician needs, is a possible beneficiary. It’s a holding in TB Amati UK Smaller Companies.
And it would be remiss of me (not to mention sackable offence given the number of fans in the office) if I didn’t mention football and the reopening of stadiums. Not teams we support at FundCalibre, but LF Lindsell Train UK Equity^ owns both Manchester United and Celtic.
And speaking of Celtic, it seems their nine-year reign at the top could be about to come to an end. Rangers FC, a holding in ES R&M UK Recovery^^, is just four points away from securing its 55th Scottish Premiership title. This may well happen before fans are back in the stadiums, but I’m sure that won’t stop the (socially-distanced) celebrations.
What better example of a British recovery story?
With any luck I’ll be writing FundCalibre articles in the office once again by the end of June. But it will be interesting to see how many people return to the office full time, and how many people take the opportunity to work some days from home still.
British Land and IWG, which own flexible offices spaces could benefit from a permanent change in behaviour. They are holdings in BMO European Real Estate Securities and Ninety One UK Special Situations respectively*.
*Source: fund factsheet, 31 January 2021
**Source: Interim financial report, 30 September 2020
^Source: FE fundinfo, full holdings, 26 February 2021
^^Source: River & Mercantile, 4 March 2021