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Lovestruck: 10 fund managers reveal investments they adore

Love is flowing this Valentine's Day as 10 fund managers reveal the investments they just can't get enough of.

Jeremy Lang, founder and partner of Ardevora Asset Management

Anglo American

'Buying Anglo American in March last year was our first foray into the mining sector for a long time. A new CEO arrived at the end of 2013 and in the face of collapsing commodity prices, management was forced to get to grips with the sprawling nature of the business.

'Almost a year on, the story remains broadly the same. The main difference is that the share price has risen considerably. So the investor remains caught in a trap between improving fundamentals and a feeling they are "too late" to buy the stock.

'What is of more interest to us is that management behaviour seems to be improving more widely across the sector. There is evidence that more companies are reducing capacity and capital discipline is returning to the sector for the first time in years. A combination of slightly lower supply and (possibly) slightly higher commodity prices is a potent combination.

'The share price of all mining stocks tells the same story: there was an unusual amount of investor anxiety at the start of the year. Our sense is that investors are still traumatised by this event and are reluctant to accept that the recent improvement in prospects is sustainable. As a result, we think Anglo American has further to run.'

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Jeremy Lang, founder and partner of Ardevora Asset Management

Anglo American

'Buying Anglo American in March last year was our first foray into the mining sector for a long time. A new CEO arrived at the end of 2013 and in the face of collapsing commodity prices, management was forced to get to grips with the sprawling nature of the business.

'Almost a year on, the story remains broadly the same. The main difference is that the share price has risen considerably. So the investor remains caught in a trap between improving fundamentals and a feeling they are "too late" to buy the stock.

'What is of more interest to us is that management behaviour seems to be improving more widely across the sector. There is evidence that more companies are reducing capacity and capital discipline is returning to the sector for the first time in years. A combination of slightly lower supply and (possibly) slightly higher commodity prices is a potent combination.

'The share price of all mining stocks tells the same story: there was an unusual amount of investor anxiety at the start of the year. Our sense is that investors are still traumatised by this event and are reluctant to accept that the recent improvement in prospects is sustainable. As a result, we think Anglo American has further to run.'

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Stuart Mitchell, founder and CIO of SW Mitchell Capital

STMicroelectronics

'We continue to see a European economy that is somewhat stronger than investors perceive. Our view further supported by a raft of very encouraging data in recent months, such as eurozone manufacturing PMI rising to its highest level for five and a half years and French PMI reaching a five-year high. Spanish job creation also rose at the fastest rate since the property market collapse a decade ago.

'So while many investors remain sceptical, we continue to identify a number of attractively valued underappreciated companies on offer in Europe.

'For example, in the latter part of 2016 we purchased a significant new position in the French semiconductor group STMicroelectronics. With a very broad range of different technologies, STM also appears to be well positioned to benefit from the rapid development of the "internet of things".

'The emergence of areas such as autonomous vehicles, home automation, health and even drones are presenting dynamic growth opportunities.'

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Richard Penny, L&G UK Special Situations Trust

DCC

'DCC, the FTSE 100 company with a market cap of £6 billion, is an international business services group operating in the energy, technology, healthcare and environmental industries. It has been a stealthy growth compounder in the L&G UK Special Situations Trust.

'DCC has an impressive long-term growth track record, based on a successful formula of organic progress with shrewd reinvestment of cash flows into value-creating acquisitions. Over the last five years, DCC has grown its operating profit at 13% per annum – comfortably above the average growth of its peer group. Management are highly focused on cash generation and returns, which in our view means the company is well positioned to continue its growth strategy.

'DCC recently agreed to buy Esso’s retail petrol station network in Norway for £235 million, and the acquisition is considered a good strategic fit. With an expected return on investment of c.15% in its first full year of ownership, it is moreover likely to enhance earnings.

'Looking ahead, we believe the market is underestimating growth potential from market consolidation. DCC remains, in our view, well positioned to increase the level of acquisitions in its main energy, healthcare and technology divisions in Continental Europe and globally.'

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Freddie Lait: founder Latitude Investment Management

Alphabet

'Falling in love with any investment is never an advisable strategy.

'However, if I had to admit to one such bias it would be Alphabet, Google’s parent company. The business has an incredibly defensible sustainable competitive advantage through its search, mobile, and online advertising businesses.

'Their growth assets including Maps, YouTube, Cars and many others will help deliver long-term earnings growth of 15-20% while maintaining their impressive 25% operating margins. Investors benefit from immediate attraction and the fact that it’s a cheap date, trading on 12x operating profit.'

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Josh Spencer, manager T Rowe Price Global Technology

Tesla

'We believe Tesla Motors is an innovative company and its CEO Elon Musk is a successor to Steve Jobs in terms of innovation and transforming an industry.

'Similar to Steve Jobs, he is an innovative thinker in terms of marketing, consumer focus, and inspiring loyalty among employees. These are all aspects that make a technology company special and Elon Musk has infused these attributes into Tesla.

'The total addressable market of the auto industry at over $1.5 trillion globally also provides the opportunity for growth. There is an internal energy at Tesla that is relatively unique, even among technology companies. Tesla did the hardest thing first: It made a very good car on a shoestring budget. It just so happens to be electric. In 20 years, we would be very surprised if the vast majority of cars are not electric.'

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Ketan Patel, fund manager EdenTree Investment Management

Mears

'In the aftermath of Britain’s vote to leave the EU, the investor trade seemed relatively straightforward: buy FTSE 100 stocks at the expense of the more domestically-focused mid and small-cap companies. However, we have long believed there are many high-quality small and mid-sized UK companies able to thrive in this new world.

'One such opportunity is Mears, a market leading provider of social housing services in the UK. The company has a track record of delivering long-term returns to shareholders and has built up a strong forward order book and is growing margins.

'Management has tackled the issue of wage inflation, the living wage, by engaging with clients at an early stage and only taking on profitable business. This augurs well for the Mears, given the significant long-term business opportunity that an aging population brings. The company’s excellent earnings visibility, all in the UK, is supported by a robust balance sheet.'

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Nick Watson, Henderson Global Investors multi-asset manager

Jupiter UK Special Situations

With a successful long term track record as a value orientated UK equity manager, Ben Whitmore has navigated a range of market dynamics as an investor.

However he has retained his long term focus on out of favour companies with resilient balance sheets and strong franchises.

Amid a backdrop of investor crowding in bond proxies and growth stocks, the Jupiter UK Special Situations fund currently presents investors with exposure to high quality business in cyclical industries that are unloved but poised to benefit from an environment of improving economic activity and rising bond yields.

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Mike Clements, manager Oyster Continental European Selection

Banca Sistema

Banca Sistema is a specialty finance company that acquires trade receivables owed by Italian Public Administration. Its core product, invoice factoring, purchases receivables at a discount to face value and then recovers the full amount generating an attractive IRR.

Banca Sistema is an overlooked and under-researched stock that has an attractive, low risk business model. The low valuation reflects lack of wider interest from other investors and general antipathy towards Italian financial stocks.

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Martin Todd, co-manager Hermes European Alpha Equity

Amadeus/Autotrader

'What makes Europe a particularly exciting investment opportunity is that the companies performing strongly have already endured eight years of economic and political turbulence.

'Current investor concerns are similar to the anxieties of 2008 and 2012. The verse has changed, but the song remains the same. Without an economic tailwind, these companies continue to grow by improving efficiency and reducing costs, primarily through new technology.

'A prime example is Madrid-based Amadeus, an IT solutions provider to the travel industry. Its Altea software enables airlines and hotel companies to manage capacity, pricing, and general costs more effectively.

'Another is London-based Autotrader, an online vehicle classifieds service, which has grown in popularity by lowering marketing costs for car dealerships. In fact, its emergence as the primary portal for used cars has made the second-hand car industry more efficient. Both companies are held in our portfolio. Technology remains critical for each stock and sector in the market today.'

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Shashank Savla, co-manager of the Liontrust Asia Income

Tianneng Power

'Tianneng Power is one of the leading lead-acid battery manufacturers in China, benefiting from increased sales of electric bikes and small electric cars.

'After China’s government introduced measures for manufacturers to invest in pollution control systems and encourage industry consolidation, the top two lead-acid motive battery manufacturers now control 70-80% of the market, leading to higher profitability.

'Tianneng has also been investing in new facilities to manufacture lithium batteries for electric vehicles. Tianneng has a net dividend yield of 3.7%, is expected to generate more than 20% earnings growth and is very attractively priced at 6.5x forward P/E.'

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