Jon Ingram, manager of the £139m JPM UK Dynamic fund, picks five sectors he expects will continue to perform well during the equity rally, and selects his favourite stocks from each.
Ingram has a heavy underweight in HSBC and also avoids Standard Chartered, both of which benefit from buoyant markets in Asia. Excluding those banks, he holds a 2% overweight in the sector through Barclays and Lloyds.
"The earning drivers for UK banks are positive - charging us more for loans while giving us less for our deposits," he said. "Given the improvement in the housing market, the demand for credit should go up, allowing Lloyds and Barclays to grow their revenues."
Ingram is predicting the sector's stellar performance will continue, as Chancellor George Osborne's mortgage guarantee and shared equity schemes continue to spark growth.
"Housing transactions are still at 50% of their peak, so there is a lot more potential to increase," he said. "We have captured this through Berkeley, Barratt and Taylor Wimpey."
The manager tipped Partnership Group, which floated in June, as an "exciting name" set to benefit from higher bond yields.
"In essence, they are offering enhanced annuities to people with health conditions or lifestyles that affect their life expectancy," Ingram said. "While the general retirement annuity market is set for 11% growth per annum, Partnership's niche is forecast to grow at 23%."
Travel and leisure
EasyJet is the "key stock" in the sector, according to Ingram. "The whole industry is benefiting from a more rational approach to capacity: airlines are cutting the frequency of and number of routes they offer," he said.
"From peak, the network carriers, including Alitalia and Lufthansa, have cut capacity by 7%. Two low cost carriers, Spanair and Malev, have also gone out of business."
Mid-cap favourite Ashtead is another of Ingram's picks. The equipment rental business derives 85% of sales from the US, benefiting from the rejuvenation of the country's construction business.
Its stock has soared 64% this year, and the manager is forecasting continued good performance.
Ingram's fund has returned 39.2% for the year to 19 July compared to an IMA UK All Companies average of 27.1%, according to Morningstar.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress