View the article online at http://citywire.co.uk/money/article/a608673
Edinburgh Worldwide's Urquhart sells Gazprom on shale gas and political fears
Mark Urquhart, manager of the Edinburgh Worldwide investment trust, is putting his Gazprom cash into Chinese healthcare firms.
Urquhart, whose fund features in Citywire Selection, typically holds stocks on at least a three- to five-year horizon, but has finally lost patience with Gazprom because of heightened regulatory and political concerns, as well as the rise of shale gas as a viable energy source.
'We have now thrown in the towel on Gazprom. The key thing for us was its huge gas reserves, but the political risk and the huge and growing shale gas story has tipped the balance against it,' he said.
Banking on Chinese healthcare
Urquhart has used the Gazprom sale to fund Shandong Weigao as a play on ever-increasing Chinese investment in healthcare. The business supplies medical and surgical equipment, and is set to benefit further from a huge roll-out of healthcare products to China's rural population.
The second part of the company is a dialysis machine distribution operation, which Urquhart says is seeing strong growth as China replaces a lot of old Western equipment with its own at a much lower cost.
Another recent sale has been Swedish transmission equipment manufacturer ABD. Urquhart has held the group due to the huge continuing global demand for such equipment in power generation, but he now thinks it is facing some challenges. 'A huge round of capital expenditure is needed at a tough time, and it is facing rising competition from companies like Shanghai Electric,' he said.
Adding to Facebook
Urquhart has recycled the proceeds into Facebook, which has fallen hard since its May IPO. Urquhart started to buy the stock at $28, and has bought more since the stock fell below $23.
He thinks the gloom over Facebook has been overdone after what he calls a 'botched IPO' and thinks many investors are focused too much on the short term and problems with its gaming platforms. The company is currently 2% of the £190 million portfolio, but Urquhart is increasing it towards 2.5%.
'Facebook is a "show me" stock and the market puts too much emphasis on the short term. It is growing rapidly so is spending a lot. Amazon reported on the same day [as Facebook] and had similar quite strong top-line growth, but because it has a track record it got rerated. If Facebook delivers decent numbers over the next three years people might start to believe it is working.'
Tough start to 2012
The trust has endured a tough first two quarters of 2012 with key holdings such as Chinese search engine Baidu and New Oriental Education sold off sharply on fears over slowing growth in China, but Urquhart is sanguine about its long-term prospects.
'There has been uncertainty over the Chinese consumer, but Baidu's top-line growth is still at about 40% and it has 320,000 Chinese users. It has announced a tie-up with Twitter, and we think it can carry on producing the goods and will be ultimately rewarded,' he said.
Among his fashion stocks, Burberry (BRBY.L) also suffered a first-half hit on slowing consumer spending in Asia, but is now rising again, and Zara owner Inditex is continuing to perform well globally for Urquhart despite the issues in its home country of Spain.
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