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Investment Times

Three reasons to be positive about UK companies

| 28 December 2017 | A A A
Three reasons to be positive about UK companies

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

The UK is home to some world-class companies, from multinational household names doing business across the world, to innovative, higher-risk smaller companies exploiting profitable niches at home.

But pessimism around Brexit has made some investors nervous about the UK. This could spell opportunity, as it means UK shares are modestly valued relative to their profits.

Here I explain why we think it's a mistake to overlook the UK market, and below you'll find a great way to take advantage of the opportunities.

Reason #1: Great companies

It’s easy to underestimate opportunities on our doorstep, but the UK stock market is more diverse and more exciting than many investors assume.

You can choose from global leaders in fields like consumer goods and pharmaceuticals, through to higher-risk smaller firms operating in cutting-edge industries aiming to become the giants of tomorrow.

In the middle there’s a whole host of medium-sized firms that combine some advantages of scale with the capacity for rapid growth.

It's easy to underestimate opportunities on our doorstep, but the UK stock market is more diverse and more exciting than many investors assume.

Reason #2: International diversification

The UK stock market is an international feast.

Britain’s biggest businesses earn, on average, three quarters of their revenue overseas. This means they are often sheltered from issues affecting a specific location or currency.

Reason #3: Attractive valuations

The UK stock market has performed well over the past year.

But it’s also lagged its global peers, and relative to their earnings potential many companies now look good value. Investing when valuations are low gives you a better chance of long-term success, though there are no guarantees.

One way to tap into the UK’s potential

We think the UK’s growth potential is best harnessed by investing with a dedicated and experienced stock-picker.

The HL Select UK Growth Shares Fund is managed by our in-house experts Steve Clayton and Charlie Huggins. It recently reached its one year anniversary and we’re extremely pleased with its performance so far – though as ever this isn’t a guide to the future.

Below Steve lifts the lid on his investment approach and explains why he’s excited about the fund’s future prospects.

Steve Clayton - Head of Equity Funds

When we launched the fund, the idea was simple.

There’s a virtuous circle that supports financially strong businesses with exceptional products. Loyal customers willing to pay premium prices can deliver healthy profit margins and strong cash flow. The effects of compounding are powerful. If a business can keep growing reliably, over time it can significantly increase in value.

We currently hold 25 to 30 stocks. We want to back our conviction, so each company can make a real difference to the fund’s returns. But investing differently from the wider market also increases the risk of underperformance.

We pay no attention to a company’s size. We hold a number of global giants, but also invest in medium-sized and higher-risk smaller companies. This is where we tend to find the most compelling growth prospects.

The fund’s early performance has been promising, although this is a very short time period. We don’t always get it right. A handful of holdings haven’t delivered so far. In most cases we’re still positive on their prospects. We’ve bought more Domino`s Pizza and Auto Trader to hopefully take advantage of lower prices.

As ever please remember that past performance isn’t a guide to future returns. Like all stock market investments the fund’s value can fall as well as rise, so you could get back less than you put in.

Performance since launch

Past performance is not a guide to future returns

Source: Lipper IM to 01/12/17

Annual percentage growth (income reinvested)
Dec 12-13 Dec 13-14 Dec 14-15 Dec 15-16 Dec 16-17
HL Select UK Growth Shares Fund n/a* n/a* n/a* n/a* 22%
FTSE All-Share 19.8% 3.7% 2.2% 8.7% 13.4%
IA UK All Companies Sector 25% 2.8% 5.7% 5.0% 15.4%

Past performance is not a guide to future returns

*Full year performance not available

Source: Lipper IM to 01/12/17

Please remember past performance is not a guide to the future. Like all stock market investments it can fall in value, so you could make a loss.

Themes running through the fund

Global strength

Many of our companies are global leaders with high market shares, robust distribution networks and proven brands. Unilever and Reckitt Benckiser have been selling their shampoos, ice creams and headache cures for decades. Trusted brands create pricing power, leading to big margins and the strength to keep reinvesting in the business.

Technology innovators

Companies like Rightmove and Auto Trader have used the internet to dominate markets that used to belong to the classified ads. Domino’s Pizza has grown market share by adopting technology early, and Just Eat has connected takeaway outlets to hungry people. All these companies have generated strong profits and cash flows.

One offs

Some of our businesses are quite unlike any others. Burford Capital dominates the world of commercial litigation funding, backing law suits in return for a share of the proceeds. The business may be unique, but the flow of legal disputes around the world is unlikely to dry up.

Repeat revenue

A great way of strengthening the virtuous circle is to make, or do, something your clients will commit to again and again. If a business can rely on most of what it earned last year coming back through the door this year, that’s a great starting point for growth.

Looking to the future

It’s early days for the fund. But we think there are some powerful drivers underpinning the businesses in the portfolio and we’re excited about their prospects.

The strongest companies have great control of their destiny, and often earn their revenues all over the world. We don’t hear much about Brexit from the companies we hold. Our philosophy has always been to search for businesses that grow strongly in the good times and are resilient when the going gets tough.

The HL Select UK Growth Shares Fund is run by our sister company HL Fund Managers Ltd.

Fund Information

Investment goal: Growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.60% p.a.
Vantage service charge: 0.45% p.a.
Maximum overall charge: 1.05% p.a.

View Fund Key Investor Information document

View our charges

HL Select UK Growth Shares Fund

Add HL Select UK Growth Shares Fund to watchlist

View the HL Select UK Growth Shares Fund factsheet

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.