Dynamic trio bet the house on Osborne’s ‘Generation Buy’
IT IS not just George Osborne that is banking on a massive housebuilding programme to keep the economy on an even keel over the next five years.
The triumvirate of managers that oversee the JPM UK Dynamic Fund are equally keen that the biggest home construction programme since the 1970s – promised by the Chancellor in last Wednesday’s Autumn Statement – will materialise. And be successful in transforming ‘Generation Rent’ into ‘Generation Buy’.
More than 10 per cent of the £155million fund is invested in housebuilders and its managers are hoping that Osborne’s pledge to get 400,000 new homes built between now and 2020 will drive these companies’ share prices ever higher over the coming months.
In the immediate wake of the Autumn Statement, the strongest UK stock market performers were builders Taylor Wimpey and Barratt Developments – companies that John Baker, Jonathan Ingram and Blake Crawford hold in the 58-strong fund. They also have key stakes in Berkeley Homes and Persimmon.
The managers’ big exposure to housebuilders is reflective of their overall confidence in the domestic economy. ‘There are a lot of companies in the FTSE 100 Index – mining stocks for example – that have little to do with the UK economy,’ says Ingram.
‘As fund managers, we are more interested in companies that are exposed to the robust UK economy, which is on course this year to be the fastest growing among the G7 group of countries and one of the strongest worldwide. It’s where we see value.’
The level of 10 per cent of the portfolio invested in housebuilders compares with a three per cent representation in the FTSE AllShare Index, the market that the managers are aiming to beat over the long term. Housebuilders form part of the 22.9 per cent exposure that the fund has to consumer goods, one of its most overweight sector positions compared with its benchmark index.
‘The Chancellor’s determination to get new homes built supports our position as fund managers,’ says Ingram. ‘By bringing new supply on board, it will help aspiring homeowners and be good for the housebuilders we hold in the portfolio. Last Wednesday’s Autumn Statement was like music to our ears.’
Ingram’s belief in the strength of the domestic economy is also reflected in the fund’s 10 per cent exposure to retailers – part of the 23.4 per cent holding in consumer services companies, its biggest sector position. Retailers form just under three per cent of the FTSE All-Share Index.
Key holdings include WHSmith and Next. ‘WHSmith is a fantastic franchise,’ says Ingram. ‘Some feared it would not survive the new digital age, but it’s remoulded itself, putting branches into airports and piggybacking off the growth in travel.
‘Next, like Zara and H&M, is a quality retail business backed by quality management. It’s one of the few high streets retailers to have successfully embraced the internet.’
Ingram, Baker and Crawford are part of a big ‘behavioural finance’ investment team at JPMorgan, an approach much in vogue across the City. It starts from the premise that one of the biggest influences on stock markets is the psychological behaviour of investors.
It seems to work. Over the past five years, UK Dynamic has delivered returns of 69 per cent, compared with the 41 per cent advance in the All-Share.