UK portfolio managers are neutral to underweight construction and housebuilding companies, although ...
UK portfolio managers are neutral to underweight construction and housebuilding companies, although they are open to selected stock opportunities.
Royal & SunAlliance Investments is broadly neutral in its exposure to the building and construction sector although Michael Felton, UK fund manager at the group is keen on construction firm Aggregate Industries.
He believes the firm is set to benefit from the ongoing roadbuilding programme in the US as well as potential increased investment in roads in the wake of the recent Comprehensive Spending Review. Aggregate Industries' shares have fallen by 17.74% over the 12 months to 25 July and the stock is on a P/E of 12.27 times.
Felton adds: "An important consideration for us is liquidity and we would tend to focus on the larger stocks in the sector, for example Barratt Developments."
Barratt is on a P/E of 7.45 times and has seen its share price fall by 29.94% in the 12 months to 25 July.
BWD Rensburg is not keen on the housebuilding or construction sectors but the group does invest in selected stocks. Mark Hall, UK fund manager at the group, says: "We have never really liked the housebuilding sector per se as it has been too cyclical. Stocks in this area of the market do not have the characteristics that we look for. We look for factors like superior returns on capital and good free cashflow. We are looking for growth areas of the economy. The construction sector tends to offer similar levels of growth to the rate of GDP growth."
Yet Hall does hold housebuilder Bellway as he views it as cheap, with limited potential for downside.
Bellway shares fell by 29.38% in the 12 months to 25 July and the stock is on a P/E of 6.13 times.
Felton adds: "Housebuilders as a sector have become less important because of the sector's size. It accounts for less than 1.5% of the FTSE All-Share and it is not a sector that fund managers have to get right. You are not going to get harmed that much if you avoid it.
From a macro-standpoint, we have got house price stability which is not an environment where one would tend to see these stocks perform. But we did not get the run-up in these stocks that one would have expected when house prices were rising strongly."
In the construction arena, Hall holds Marshalls, a UK market leader in concrete paving for the commercial and residential markets. Hall says the firm has a strong market position and is on a P/E of 10.93 times. Marshalls' shares fell by 2.68% in the 12 months to 25 July.
BWD Rensburg favours Hepworth, which has recently sold off subsidiaries including its minerals division to focus on what Hall believes are its two strongest businesses - central heating boilers and pipes.
Hepworth has around £220m in cash, which Hall says could either be returned to shareholders or used to bolster the firm's position in the European central heating boilers market. Hepworth is on a P/E of 10.4 times and has seen its shares rise by 3.64% over the 12 months to 25 July.
Irish border, resignations, market volatility and more
Revealed – successes across all 11 categories
Fidelity International multi-asset CIO James Bateman talks to Julian Marr about recent market volatility, portfolio positioning and his thoughts on the coming year
Follows Phil Young
‘Positive so far’