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Rathbone's Thomson takes cash close to 20% limit
James Thomson worries that even a decline to 7% growth in China will feel like a recession, leading him to lift his global fund's exposure to US firms instead.
Citywire A-rated Thomson is a stock picker at heart, but admits that over the past five years managers have increasingly needed to combine this with a top-down view. ‘How sectors interact, how countries are evolving, taxation and politics all have to be ingredients in decision making,’ he said.
The fund, which is on a watchlist of funds for possible inclusion in Citywire Selection, started the second quarter of the year with 8% in cash, but Thomson has now lifted it to 19%.
‘I’m nervous about a slowdown and large imbalances in China where fixed asset investment is falling. Electricity consumption is also dropping, and I believe this is the most appropriate way of looking at GDP. Even a move to 7% growth will feel like a recession,’ he said.
Cheap China is over
As a result, Thomson has recently sold positions that feed into China’s boom and switched to US companies serving Mexico. He believes cheap wages in China are now a thing of the past, and with Mexico on America’s doorstep, orders can be turned around quickly with lower transport costs.
To make the most of this move to what he terms ‘near-sourcing’, he has invested in Kansas City Southern Railways, which owns tracks both in the US and Mexico.
Thomson’s approach on the £165 million fund is to find growth companies that are entrepreneurial, innovative and have low costs when scaling up their business. This means a number of ideas are found in small and medium-sized companies, where the portfolio has 10% and 27% exposure respectively.
As this increases volatility, larger companies with reliable and predictable earnings streams that still offer growth are also important. Examples of this type of ‘weather-proofing’ stock that provide balance include tobacco companies Philip Morris and Swedish Match, which are among the top holdings.
‘Swedish Match is strong in Scandinavia and is also growing in the US, especially with its cigar range,’ he said.
Top internet pick
The top holding is Rightmove (RMV.L), the UK’s largest online property website, where revenue per estate agent has grown from £100 in 2003 to £500. ‘They are very strong at analysing online behaviour and creating new business ideas from it. They recently realised that sold properties remained listed as agents wanted to show their activity. This has now been banned unless users pay for it.’
Thomson avoids mining stocks, banks, telecoms and utilities. A mixture of their inability to control pricing, vulnerability and regulation are all reasons why these areas are out of favour in the fund.
But a way of trying to exploit increased red tape has been found through an investment in Intertek (ITRK.L), a UK-listed company that provides testing and inspection in a range of industries. ‘EU directives seem never ending and they can make the most of bureaucracy with their kite marks and testing of goods’.
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