UK equity income fund managers are shifting money into select old economy stocks with attractive yie...
UK equity income fund managers are shifting money into select old economy stocks with attractive yields. These businesses have been left behind over the past year amid the technology boom.
Sectors such as brewing, housebuilding and engineering have fallen over the last 12 months with the FTSE All-Share Engineering & Machinery index down by 7.48% in the 12 months to 10 April. Groups including Clerical Medical and SG Asset Management are now raising their weightings in some of these areas in the belief they are undervalued.
William Claxton-Smith, director UK equities at Clerical Medical, has bought into companies including brewing giant Scottish & Newcastle, which has recently agreed to acquire the Kronenbourg lager brand from French group Danone.
The brewing industry has underperformed on the back of market concerns about overcapacity in the sector, although Claxton-Smith believes Scottish & Newcastle will benefit from restructuring and its aim to get access to European markets through its Kronenbourg move.
Scottish & Newcastle is on a 12 month net dividend yield of 5.63% and the company has seen its share price fall by 28.4% over the 12 months to 11 April. Claxton-Smith is not keen on the engineering sector, as he believes there are better opportunities among other stocks which are also on low ratings.
Adrian Gosden, income fund manager at SG Asset Management, is looking to take advantage of flows out of technology, media and telecoms stocks amid the fall in the Nasdaq in the US. The index has fallen by 18.16% in the month up to 11 April in dollar terms. SG Asset Management has cut weightings in stocks including BATM and invested in companies like British Aerospace and Legal & General.
British Aerospace, on a P/E of 22.1 times, offers a net 12 month dividend yield of 2.25%. Legal & General shares are down 10.86% in the 12 months to 11 April and the company offers a net dividend yield of 2.37%.
Claxton-Smith holds publishing group Reed in the belief it is undervalued on a P/E of 13.36 times. Reed offers a 12 month net dividend yield of 3.13% and the company's shares have fallen by 19.42% over the 12 months to 11 April.
Clerical Medical has holdings in housebuilding group Caradon. Caradon is on a 12 month net dividend yie ld of 6.64% and its shares have risen by 11.28% over the last 12 months.
Claxton-Smith has a weighting in Bryant which is on a P/E of 7.72 times. He says many housebuilding stocks appear to have the threat of a severe slowdown of the housing market built into them, which he does not believe is imminent. Bryant shares have fallen by 6.41% over the last 12 months and the stock offers a 12 month net dividend yield of 4.69%.
Gosden says SG Asset Management will watch for what happens to the Nasdaq over the near term to help determine whether it returns to increased weightings in tech, media and telecoms or whether it looks to invest in the less liquid areas of the old economy such as housebuilders.
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