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Fund managers: the shares we’d like to see in our stocking

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17/12/2015
We ask fund managers which investment they would like to be unwrapping this Christmas.

Lloyd Harris, manager, Old Mutual Corporate Bond fund, Old Mutual Global Investors

Nationwide

I don’t want a lot for Christmas, there is just one thing I need – Nationwide Building Society! You can’t buy any equity in Nationwide because it’s a mutual, but you can buy the bonds instead. In fact, I particularly like the hybrid bonds which are effectively a mixture of debt and equity and yield a very attractive 7.7%

Nationwide is now super safe after increasing capital, reducing bad assets and increasing profits. Looking forward to 2016 there’s no reason why this shouldn’t continue as the housing market remains underpinned by a lack of supply and the UK economy remains in good health. And a rate rise or two is actually good for buildings societies and banks – it increases margins.

Nationwide flew through the Bank of England’s latest stress test with flying colours. It’s been deemed the safest “bank” in the UK with a stressed capital ratio 19.1%. To put this in context, the next best stressed capital ratio was Santander UK at 9.8% and then Lloyds at 9.5%. So with a yield of 7.7%, it’s Nationwide that offers the risk reward characteristics that I want in my stocking.

Scott Baikie, senior portfolio manager, Thomas Miller Investment

NCC Group

A stocking-filler should be small and exciting, and I think I have just the share.  Cyber security has become a hot topic in recent years.  Companies such as Sony and closer to home, TalkTalk, have been high profile casualties.  The damage sustained from such attacks can be fatal and understandably this topic now dominates corporate risk agendas.

Enter NCC Group which effectively provides IT security services; the cyber equivalent of G4S.  It has teams of ‘ethical hackers’ who test the integrity of a company’s web-based systems probing for weaknesses.  Unusually for a technology business, profits and dividends have been tangible and grown consistently for the past decade.

NCC aims to be the world’s leading cyber security firm.  The management team has been very acquisitive and the company has grown substantially from its initial stock-market listing in 2004.  Last month they bought a Dutch business (Fox-IT) for almost £100m which will definitively place them within the UK mid-cap space and give entry into the FTSE 250 when it is next reconstituted.

Demand for cyber security is strong and unlikely to slow in the immediate future.  As NCC bulks up its capabilities within this space, this stocking-filler should continue to bring cheer in 2016.

David Pinniger, manager, Polar Capital Biotechnology fund

Summit Therapeutics

The stock I would like to see in my Christmas stocking is Summit Therapeutics plc. This small cap UK biotechnology company has seen a change of strategic direction in recent years upon the arrival of seasoned biotechnology CEO Glyn Edwards.

The company has two extremely promising, yet quite distinct, drug development programmes. The first is in the area of Duchenne Muscular Dystrophy, a rare inherited muscle wasting condition, where the company is collaborating with the University of Oxford to develop some exciting new drug candidates against a disease where patients are desperate for new drugs that can delay the progression of this serious life-threatening disease. The second is in the anti-infectives area, where the company has recently shown exciting results from a mid-stage clinical study of its antibiotic drug candidate to treat C.difficile – a dangerous, predominantly hospital-based, bacterial infection.

While the risks of drug development are notoriously high, we believe the team at Summit is in a strong position to maximise the chances of success for both of these exciting drug discovery programmes, which should drive the valuation of the company multiple times higher than the current level. A really great ‘off the radar’ name for long-term risk-tolerant investors.

Ian Kavanagh, investment manager, Hargreave Hale

Hansteen

One feature of quantitative easing in both the UK and US was a rise of property values, so with this process now well underway in mainland Europe, we feel a similar trend will develop.  Although the Hansteen head office is in London and its shares listed on the London Stock Exchange, a majority of the revenue is from multi-let industrial properties in Germany and Northern Europe, where management aim to acquire non-prime assets, seek to add value and improve occupancy through active management, and then sell for a profit.

We like this private equity style approach and the commitment to a growing, well covered dividend yield (currently at just below 5%), while we also consider there may be some scope for industrial real estate prices to start catching up with commercial and retail space, partly due to the exponential growth of internet shopping.  The current property portfolio, including the UK assets, is worth around £1.5bn with the rent roll spread across a diversified base of 6000 tenants.  There could be some impact for UK investors should the Euro continue to weaken, but we would expect the uplift in asset values to more than off-set this.

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