How to profit from the Budget’s tech and housing spend
Philip Hammond’s Budget was light on gimmicks, magic rabbits and controversial policy announcements. Instead, the Chancellor pledged to fix the broken housing market which has become out of reach for many aspiring homeowners, building an average of 300,000 homes every year by the mid-2020s, as well as committing £44bn of capital funding, loans and guarantees to support the housing market.
Earlier in the week, Hammond set out plans to have fully driverless cars without a safety attendant in use by 2021 and he built on this by setting out his “vision for Britain’s future” by investing in driverless and electric vehicles, 5G and artificial intelligence. As such Hammond committed £400m to a new charging infrastructure fund, an extra £100m for a Plug-In-Car grant and £40m in charging research and development. Further, he announced £500m investment for artificial intelligence and 5G initiatives.
Given the significant spending measures to “build on the strengths of the British economy” and “build a Britain fit for the future”, it could provide exciting investment opportunities.
But for investors turning to housebuilders, it’s important to note they have had a strong run over the past few years and are arguably quite expensive now, says James Yardley, senior research analyst at Chelsea Financial Services.
“However, the removal of stamp duty for first time buyers (up to £300,000), the determination to make more land available for housing, the speeding up of the planning process and the commitment to build more houses, could give the sector and those companies linked to it a further boost.
“Looking at AI, 5G and full fibre broadband, there are also exciting opportunities. Britain is starting from a great base and this support should help fund smaller businesses. Technology managers we speak to are very excited about AI in particular.” Here are his suggestions:
Woodford Equity Income
Veteran fund manager, Neil Woodford has holdings in housebuilders Taylor Wimpey and Barratt Developments, as well as Purplebricks, the online estate agent, which should benefit from the stamp duty exemption announced for first-time buyers, according to Yardley. Woodford also invests in lots of small tech start-ups and broadband company CityFibre.
Jupiter UK Growth
As above, this fund also invests in Taylor Wimpey, as well as Zoopla and kitchen maker, Howden Joinery. Like Woodford, Steve Davis likes CityFibre. He also holds Thomas Cook, which could benefit from the freeze on the short-haul flights tax.
Franklin UK Mid Cap
This fund holds Ibstock, a brickmaker which could do well on the back of increased housebuilding, and Bellway, Yardley suggests. It also invests in Howden Joinery as well as Homeserve, a heating installation company.
L&G UK Alpha Trust
This fund has a holding in Seeing Machines which makes intelligent sensory algorithms to help machines understand people. Yardley says: “It’s being used to monitor drivers and increase safety, as well as the move towards driverless cars because it helps the machine to make instant decisions based on what is happening inside and outside the car”.
Smith & Williamson Artificial Intelligence
Having just recently launched, the fund hopes to tap into the opportunities created by the development of AI. It holds overseas stock Nvidia – a company which has a background in gaming and has since moved into automotives as a new business area. Yardley says it is currently one of the most strategically important component companies in the AI world.
For Adrian Lowcock, investment director at Architas, the investment into technology in the UK should give a boost to the sector which is primarily full of smaller companies.
He lists these three funds to benefit from the Budget:
River & Mercantile Micro Cap Trust
The portfolio will be mainly comprised of AIM listed stocks but the manager, Phillip Rodrigs, can invest in companies with a market value of less than £100m. The fund will hold between 30-50 stocks and is not constrained by any benchmark, so doesn’t have to hold stocks in any sector. Rodrigs has balanced the portfolio between strongly cyclical, domestic focused businesses and international earners. The fund has 14% in technology and 5% in real estate.
Franklin UK Smaller Companies
Lowcock says the managers, Richard Bullas and Paul Spencer, tend to take a cautious approach to investing in smaller companies, making long-term investment in companies with attractive risk/reward profiles. “The managers are willing to take a contrarian stance when market mispricing creates outstanding investment opportunities”, he says. While economic and industry drivers are important considerations, the fund is built from the bottom up, with each stock included in the portfolio on its own merit. The fund holds around 13% in technology and 9% in construction and real estate.
JO Hambro UK Equity Income
James Lowen and Clive Beagles look for companies which have an above average yield and will sell it if the yield falls below that level. This process forces them to sell as well as reducing valuation risk out of the fund. The managers look for companies with under-appreciated and undervalued shares and they also have a bias towards mid and smaller companies. Lowcock adds: “The stock selection drives the majority of the performance of the fund with the balance coming from sector allocation and market cap exposure”.
For investors wishing to delve into sustainable stocks and funds, Neil Brown, co-manager, Liontrust Sustainable Investment team, says core components of driverless cars, namely cameras, sensors, on-board computers and electrification, have emerged rapidly in recent years and can now be found fully operational in a wide range of vehicles.
“Improving auto safety is one of our key themes on the Liontrust Sustainable Investment team and we invest in a number of companies benefiting from moves towards electrification and better vehicle safety.
“Most of these new components require a significant increase in the semi-conductor material in a vehicle and companies such as Infineon Technologies and Valeo are leading players in this market. On average, there is £230 of semi-conductor content in a traditional internal combustion engine car but this trebles to around £700 for a fully electric vehicle,” he says.
Brown adds that Uber has also struck a deal to buy 24,000 self-driving cars from Volvo while Waymo – the driverless car developer spun out of Google’s parent company Alphabet – has begun testing vehicles without a safety driver.
Aside from housebuilding and infrastructure, investors may also want to turn their attention to the Royal Bank of Scotland (RBS). The government plans to restart the process of privatisation of RBS – which it rescued during the financial crisis – before the end of 2018/19 to dispose of around £15bn worth of shares.
Richard Stone, chief executive of The Share Centre, says: “We would call on the government to undertake this process through a large scale and populist privatisation process and using it as an opportunity to re-engage the public with share ownership helping widen share ownership across the UK.”