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Nestlé's more than just 'a place to hide', says BlackRock's Hibbert
Alister Hibbert, manager of the BlackRock European Dynamic fund, has sold out of Imperial Tobacco and put the proceeds into Nestlé.
Imperial Tobacco had been almost 3.5% of the £1 billion fund – which features in Citywire Selection – at the end of August, but Hibbert has become concerned about the pace of decline in cigarette volume growth in its core European markets, with sales having fallen faster than expected over recent months. The proceeds of that sale have seen Nestlé jump to just over 5% of the fund by the end of September.
Investors overlook Nestlé's long-term worth
Hibbert dismissed fears from some managers that Nestlé now looks expensive, calling it ‘one of the strongest positioned blue chips in the world’ despite the fact its share price has risen strongly in recent months.
‘It is always viewed as an expensive stock and looks reasonably fully valued on a three-year view, but investors often cannot see past the end of their noses. It can probably do 6% compound organic growth for the next few years. It may be near its relative highs but its consistent earnings performance justifies this.’
Hibbert said the company’s franchise was well positioned to continue to benefit from the ‘gentle acceleration of growth in the middle classes’ in both South America and Asia. ‘Other managers keep underestimating this business and think you just buy it as a place to hide, but it is a strong franchise in its own right. At 16 times next year’s earnings it deserves its premium.’
Remaining underweight financials
Hibbert is continuing with his long-standing underweight to European financials, holding just 12.5% in the sector compared with the benchmark’s 20%.
In both January and July of this year he added slightly to his financials positions to play the very short-term liquidity boosts of the LTRO programme and Mario Draghi’s positive comments on protecting the eurozone’s beleaguered banks.
Despite adding to Deutsche Bank in July, Hibbert does not believe much has changed in the fundamental challenges facing the sector and will continue with the underweight.
‘Even with the positives from recent policy changes, we would argue that there is no fundamental change for either core or peripheral financials. We do not see the banking sector as any more attractive than it was before the rally and view it as volatile. They rally hard from time to time, but for the wrong reasons.’
Hibbert has ‘a significant amount’ of futures on both the banking and insurance sectors. ‘They are much more liquid to deal in and I view them as a useful risk tool,’ he said.
While long-term favourite diabetes drug specialist Novo-Nordisk remains the fund’s top holding (6.7%), Hibbert has been increasing his exposure to Swiss luxury goods group Richemont. The company is currently his third largest holding and he has been topping up on recent weakness caused by concerns over a China-led slowdown in demand for luxury products.
Adding to 'extraordinary' Richemont
Overall, the fund has almost double the benchmark in consumer discretionary stocks, but Hibbert stresses that he holds no Swatch Group, BMW or Louis Vuitton so ‘does not look too aggressive compared to the luxury goods benchmark’.
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