‘The signs for a market rally are flashing green’
Investors have fled British funds in their droves as fears of a no- deal Brexit have increased. The recent market sell-off has left the FTSE 100 at a six-month low. Despite this, James Lowen, who co-manages the £3.7bn JO Hambro Capital Management UK Equity Income fund alongside Clive Beagles, is quietly confident that the wind is about to change.
He tells Telegraph Money why unloved domestic stocks available at historically low prices are poised to take off.
How do you differ from other income funds?
We are focused on a company’s valuation [how expensive it looks compared with historical and sector averages] and we tend to focus on cheaper stocks.
We invest in firms that have some sort of transitory structural issue, so we are essentially going against the grain of the market and investing in companies going through a tough time and that are therefore undervalued. For example, oil stocks such as Shell and BP have done very well of late, but two years ago no one wanted to own them when the price of oil was low – so we try to take advantage of negative sentiment.
For domestic stocks – almost a dirty word at the moment – valuations are astonishingly low. No one wants to buy the British market and no one wants to buy domestic stocks because of Brexit.
A lot of managers spend too much time thinking about the fundamentals of a company and not enough time thinking about how much they are going to pay for those fundamentals.
You can find a great stock with a fundamentally good business and often overpay for it.
When do you sell stock?
We get paid a dividend while we are waiting for these companies to recover and we focus a lot on dividend growth. But we are also
CV: James Lowen
Mr Lowen we is s a qualified fied chartered ed accountant. tant. He bought his first stock at t 12 and joined Newton Investment ment Management ement in 1998. He holds ds looking for stocks that can grow at the same time. We automatically sell a stock when its yield falls below the average of the FTSE All Share index, which is about 3.5pc at the moment.
We are quite strict: we sell stocks and rotate into new ones. For example, this year we have sold estate agents Savills and construction company Costain and have bought asset manager Liontrust and supermarket chain Morrisons.
We will also sell if we think valuations are getting too high, even if dividend yields are good. We recently sold Hollywood Bowl, for example, because its price was making us nervous.
£4bn investor James Lowen tells Harry Brennan why UK shares will go through the roof if there’s a Brexit deal
What is your outlook for the UK?
We are in a trough looking upwards, so I’m quite excited about our prospects. If we get a deal on Brexit, any kind of deal, it could lead to a massive twist in the market where sterling will rally and domestic stocks will also recover dramatically.
Secondly, if US interest rates continue to go up, it will be good for banks and financials.
Finally, we think prices simply have to change. Historically the prices of domestic stocks have never bee been lower and we could now be at a turn turning point. Valuation drives eve everything at the end of the day.
A All the signs for change are flashing gree green and we are economically in a stro strong position in Britain, with real wag wages going up.
Is the British high street dead?
It I is dealing with a lot of pressures, but some companies can weather the storm. We avoid bookmakers