Where are fund managers looking for Black Friday bargains?
Richard Robinson, manager of the Ashburton Global Energy fund, said: “Assuming OPEC follows through with the majority of its planned production cuts, this is unequivocally bullish for the oil sector – particularly US shale producers. Short-cycle shale producers in the US will be called upon to meet global demand growth, which is slated to be about 1.2 million barrels per day over the next year. We have already started seeing a slight upturn in US rig counts – primarily in the Permian basin. Once oil inventories rebalance to more normalised levels – which we believe will progressively occur over the next 12 months – it is not inconceivable that the combination of undersupply, normalised inventories, historically low OPEC spare capacity and an uncertain US policy in the Middle East should lead to the return of an oil price risk premium.”
Stuart Mitchell, CIO at SW Mitchell Capital, said: “Post Brexit, a number of companies have been consistently more upbeat than many had expected. In particular, UK housebuilders have made a number of encouraging comments. Taylor Wimpey’s management, who were highly nervous after the vote, noted the weeks following were ‘better than the best hopes we could have had’. Apart from prime central London property – a niche market with issues long in the making – Taylor Wimpey informed us activity is as strong as or stronger than before the referendum. We remain significantly invested in the UK housebuilding industry, which continues to enjoy buoyant demand and limited cost inflation.”
European high yield bonds
Mike Della Vedova, manager of the T. Rowe Price European High Yield Bond fund, said: “Has the US high yield market’s outperformance of the European market run its course? The European Central Bank (ECB) remains very much in easing mode, which is supportive. The ECB continues to ease monetary policy through large scale asset purchases, and while it is possible the Bank will begin tapering its buying in 2017, it is likely to remain accommodative. By contrast, it is likely the US Federal Reserve will raise interest rates for the first time this year in December, and there is the potential for further rate rises next year, particularly if the pro-growth policies materialise and cause inflation to rise. Such an environment could be challenging for US high yield, although this could be tempered if fiscal stimulus extends the credit cycle in the world’s largest economy. In all, fundamentals and technicals underpinning European high yield remain sound. Europe remains at an earlier, more credit-friendly part of the economic cycle than the US, with inflation low and growth moderate.”
Mike Clements, manager of the OYSTER Continental European Selection fund, said: “A part of the market which has been particularly weak this year and where we have been hunting for ideas is in Italian financials. Uncertainty around the upcoming referendum on constitutional reform, as well as the struggling banking system attracts most attention, especially with Monte Dei Paschi and Unicredit looking to raise about €15bn in the coming months. However, banks aside we are seeing attractive opportunities in the broader sell-off. We believe the best positioned businesses are the loan servicers, such as Eurocastle, and asset managers including Anima. Eurocastle is the leading NPL servicer in Italy and will invariably play a key role in managing the enormous stock of NPLs in the country. Anima is the largest independent asset manager in Italy, and its shares have been under pressure mainly due to the troubles of some of its distribution partners, including Monte Dei Paschi. However, at current levels we feel much of the risk is priced in and actually there is considerable upside from its developing relationship with Poste Italiane.
With polls suggesting that the Italians could reject the proposed reforms in the referendum on 5 December, we fully expect more uncertainty. This suits our contrarian style as it could throw up opportunities to buy good companies like these at attractive valuations.”
Vince Childers, senior vice president and real assets manager at Cohen & Steers, said: “We recently increased our position in real estate stocks, where valuations fell to the most inexpensive level in five years. Our US REITs are positioned for modestly higher interest rates and growth. Historically, REITs have generally performed well amid such conditions – even in the face of higher inflation. As for the UK, we remain cautious toward London office and residential companies, due to the sector’s vulnerability to economic damage resulting from the Brexit vote, and we have virtually no direct exposure allocation to those sectors. Instead, we favour U.K. companies we believe exhibit more defensive or structural growth characteristics. These include landlords in sectors such as e-commerce logistics, student housing and health care.”