David Lis, Head of Equities at Aviva Investors, provides his latest views on sectors (financial, media, mining, support services and smaller companies) and where he is seeing most value.
Financials: changing stance from negative to positive on banks
“As the UK domestic banks work through the legacy issues from the 2008 financial crisis, we are beginning to find the sector more appealing as an investment proposition. In addition, the sector is an obvious beneficiary of any upward move in interest rates as typically banks see an expansion of their net interest margin in this situation. Barclays and Lloyds are our major UK bank holdings.”
Media: valuations appear attractive
“Overall, valuations appear attractive, given that we believe many media companies have more robust cash-flows than the market perceives. Reed, DMGT and United Business Media all have strong market positions and exposure to more resilient business-to-business expenditure. We are also positive on ITV where we see the business model becoming increasingly attractive thanks, in particular, to the increased focus on quality content.”
Industrials over mining as global growth play, but mining valuations are beginning to look attractive
“We generally prefer industrials over miners as a cyclical play on improving global growth. BBA Aviation for example offers a quality franchise with cash flow generation that is under appreciated by investors.
“In the mining sector, we target miners that employ their capital in a disciplined manner, something for which the sector has not exactly been renowned. However, with Chinese GDP growth slowing, commodity prices under pressure and new chief executives at both BHP Billiton and Rio Tinto, the focus has turned to better capital discipline. Meanwhile, valuations in the mining sector are beginning to look extremely attractive on anything other than a very short term view. The sector has gone from being over-loved and overvalued back in 2007/8 to the complete opposite today.”
Overweight support services where quality companies can be found
“Our overweight exposure to the support services sector reflects a focus on holding quality companies during austere times. Bunzl and Babcock have shown their mettle through the tough economic conditions of recent years. Rentokil is a self-help story in the making. Following their recent sale of the underperforming City Link parcel delivery service, the management team can ¬¬¬focus attention on the stronger pest control and textiles franchises.”
Smaller companies: medium term valuations attractive
Over the medium term, the prospects for growth and valuations of smaller companies remain attractive hence our overweight position. As has been consistent for a number of years our portfolios are built around investments in businesses benefiting from structural growth, such as Xaar. The company’s global leadership in print head technology has driven strong earnings upgrades and a subsequent rerating.
“We have also been adding a smaller number of positions in businesses where we think new management has the ability to transform earnings prospects and valuations through internal actions. New or increased positions in Halfords and E2V were triggered by changes in management and strategy which we hope will catalyse operational improvements across the business.”
|
