The Bank of England's decision to maintain the Bank base rate at 4.5% for six consecutive months has...
The Bank of England's decision to maintain the Bank base rate at 4.5% for six consecutive months has not dampened all consumers' penchant for spending.
It is for this reason, James Ridgewell, manager of the New Star UK Special Situations fund, says he will continue to watch the retail sector closely. He notes cheap retailers, such as Land of Leather and House of Fraser, are delivering growth of more than 40% and yields of 4%.
He comments: "Despite the recent 'headline' retail sales data, I believe there are profitable investments to be made within the retail sector.
"Clearly, the consumer is having a difficult time but this is no reason to ignore the whole sector. A number of the recent Christmas trading statements bettered expectations.
"It is a stockpicker's environment. A number of the retail stocks I have are still able to deliver strong growth in profits, many of these through self-help or organic growth.
"Land of Leather, for example, is currently trading on less than 10 times earnings, delivering over 40% growth in profits and yields over 4%. Its growth is derived from a combination of strong like-for-like sales and a store expansion programme.
"Other cheap retailers that are also delivering positive like-for-like sales and growth include House of Fraser and SCS Upholstery. The online retailers such as ASOS and Ideal Shopping Direct are cheap and experiencing extremely strong levels of organic growth."
This is not the only area fund managers are watching closely. BG, Threadneedle's preferred UK holding, saw profits surge in recent weeks, as a result of raised production forecasts and dividend returns to shareholders.
For some time Threadneedle has held the belief that in the UK resources market, BG is superior by almost every measure including production growth, reserve replacement and management.
Stephen Thornber, a fund manager at Threadneedle Investments, says as gas is the fastest grower in the energy market, BG has high quality growing assets, compared to its oil counterparts BP and Shell, where volume growth has been modest.
Thornber says: "BG has a long-term performance advantage over the integrated players. It has a defined strategy in place and has delivered on it year after year. BG is held in substantial size in a number of Threadneedle's UK and Pan European funds."
Elsewhere, Andy Brough, fund manager for the Schroder UK Mid 250 fund, believes growth opportunities in the UK construction industry will unfold in 2006, following London successful 2012 Olympic Games bid.
He says: "The UK Governmenthas introduced initiatives to reconstruct schools, hospitals, roads and build the infrastructure to facilitate the 2012 Olympics. Construction is back in fashion and has caused a relative boom in the UK. I believe this to be a strong theme in the FTSE 250.
"Not only are the successful companies awarded with a contract to build the Government project, they can also win the contract to operate it for a further 25 years. The hidden value of these equity stakes is one of the reasons we have seen a lot of corporate activity in the sector."
In comparison, Jan Luthman, fund manager at Walker Crips, says he will continue to focus on sectors of the economy least vulnerable to high energy and raw material costs, for example firms that do not burn oil, and stocks where valuations can be justified by earnings outlook, rather than by hopes of possible acquisition.
Strong growth for cheap retailers
Positive outlook in the construction industry
BG a favourite stock for Threadneedle
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HL and Liberty SIPP slowest
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