View the article online at http://citywire.co.uk/money/article/a875346
AAA-rated Message defies bear to top up miners
Stephen Message, manager of the Old Mutual UK Equity Income fund, dons his 'contrarian hat' to buy battered energy, mining and banking stocks.
Old Mutual's Stephen Message (pictured) has been taking advantage of the bear market to add to holdings in oil and mining companies.
The Citywire AAA-rated manager of the Old Mutual UK Equity Income fund says he is comfortable taking a contrarian stance and finding value in unloved areas.
'In the last six months or so, the polarisation within the market has been much more defined. The valuation difference between those businesses in the eye of the storm and safe haven businesses are even more pronounced,' he said.
'In that regard, I'm sitting here with my contrarian hat on and still feel more inclined to adding what I would perceive as the value end of the market, as opposed to the quality growth and perceived safe haven end.'
Message is currently adding to oil, mining and bank shares. He argues that the companies in these sectors have already been in a bear market far longer than the wider market and have already fallen significantly.
However, he said he is not comfortable buying into safe haven, so-called bond proxy assets while so many other investors are still piling in. Instead, he is buying companies like BP, Royal Dutch Shell, Lloyds and Barclays banks. Although conscious of the risk of dividend cuts at these firms, he is not unduly concerned on a longer-term view.
'Even if these companies were to halve their dividends, it would still be yielding around 4% and relative to the broader market that is quite attractive,' he said.
'When I look at the long-term valuation metrics of these businesses, the price of sales for mining and oil companies and the multiples, such as the price-to-book ratios across all those sectors, they’re very low. These are approaching multi-decade lows, so I think the value argument is there. I can’t tell you when that value will be realised.
'I still think when there is a lot of panic in the market, as there is today. It pays to be a little more contrarian.'.
Message also continues to back telecoms, where he is more keen on large caps, such as Vodafone and the BT. He said these companies finally have pricing power which should lead to attractive cash flows.
Over three years the fund has returned 44.1% against a sector average of 40.1%.
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by Daniel Grote on Sep 23, 2016 at 17:01