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Nigel Thomas: ignore the 'fiscal cliff' and buy US
Nigel Thomas, the Citywire AAA-rated manager of AXA Framlington UK Select Opportunities, explains why he is focusing on stocks with US exposure.
Nigel Thomas, manager of the top performing AXA Framlington UK Select Opportunities fund, is increasing his holdings in UK stocks that have exposure to the US.
A recent trip to Texas has strengthened Thomas’ determination to ignore the noise around the re-election of President Obama and the impending ‘fiscal cliff’ the country faces and instead to focus on the what he sees as the underlying strengths of the world’s largest economy.
The US benefits from two of the five themes the Citywire AAA-rated manager is keen to exploit. The first is the boom in shale oil and gas, which is increasing the supply of cheap energy. The second is the renaissance of US manufacturing as some multinationals reduce the amount of manufacturing they do in Asia Pacific and ‘onshore’ it back in the US market where the finished goods are closer to their end consumers. (The other three trends are ubiquitous computing, LNG (liquefied natural gas) replacing nuclear power and urbanisation.)
‘Labour costs, demand, technology, availability and depth of capital markets, currency, transportation and energy costs, make the largest economy in the world an attractive place to do business,’ he said.
As a result of his trip Thomas has invested in Wolseley (WOL.L), the building materials and plumbers’ merchant. The company generates 50% of its profits in North America and Thomas reckons the market is turning in its favour.
‘While in Texas, we heard new orders for homes are rebounding strongly and housing starts are showing substantial growth over 12 months,’ said Thomas. ‘However, this is leading to shortages of framers, concrete workers, plumbers, roofers and painters, many of whom left the industry in the slump.’
The stay in Texas also reaffirmed Thomas’ interest in Ashtead (AHT.L), the provider of rentable building equipment. It benefits not only from the recovery in construction but also a trend for builders to lease more of their equipment. According to Thomas, in the UK 80% of building equipment is leased compared to just 40% in the US.
What makes Weir tick?
One of the main objectives of Thomas’ journey to the US was to gain a better understanding of the issues facing Weir (WEIR.L), his fund’s largest holding. Thomas first invested in Weir, around a decade ago when he took over AXA Framlington UK Select Opportunities when the company was a struggling, poorly run Glasgow-based engineer. Since then it has realised its potential becoming a world class supplier of pumps to the oil, mining and power industries.
Although the boom in shale gas initially increased demand for Weir’s fracking equipment, its shares have tumbled 13% this year as operators cut back their activities in response to gas prices falling to a low because of the glut in supply.
Weir share price: Click to enlarge
Thomas, who has 4% of his £3.2 billion fund invested in Weir, can’t do anything about the market dynamics but he is happy to stick with a company that has a strong rapport with its customers.
‘I talked to one large customer of Weir’s … and he said I only use Weir pumps, I don’t dual source, they’ve got the best pumps and they give me the best service,’ said Thomas.
At the time Thomas was speaking last week Weir shares, which have suffered a push-me-pull all year in a struggle between the bulls and the bears, had shot up 7% after a trading statement showed the group was on track to hit full-year targets, as its mining and power divisions picked up the slump in oil and gas.
Thomas has delivered total returns of 239% for investors in AXA Framlington UK Select Opportunities over the past 10 years. This places the fund second out of 170 funds in the UK All Companies sector, behind only the Invesco Perpetual UK Aggressive fund, which has been managed by two managers in that time.
AXA Framlington UK Select Opportunities is a fund recommendation from the Citywire Selection team.
For more of Nigel Thomas’ views watch the accompanying video interview the fund manager had with David Sandham of Citywire.
In the interview Thomas discusses his views on BG (BG.L), which shocked investors this month with another set of poor production figures, Imagination Technologies (IMG.L), the computer chip designer whose shares have also had a volatile year and St James' Place (SJP.L), the investment and pensions salesforced owned by the Lloyds Banking Group.
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- Wolseley PLC (WOS.L)
- Ashtead Group PLC (AHT.L)
- Weir Group PLC (WEIR.L)
- Imagination Technologies Group PLC (IMG.L)
- BG Group PLC (BG.L)
- St. James's Place PLC (SJP.L)
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by Gavin Lumsden on Dec 19, 2014 at 17:24