Tag Archives: sector
Property: Is This Just Another Bubble?
Is it time to ditch property just five months after one of the biggest boosts to the sector in decades? By Nick Reeve | Published Sep 02, 2013 The introduction of the government’s Help to Buy scheme in April triggered huge gains for housebuilders and other property-related stocks, which in turn has helped UK small and mid-cap managers – who have the widest selection of such stocks – to record strong 2013 performances. The average performance of the 10 biggest mid-cap focused funds so far this year has easily outstripped the wider IMA UK All Companies sector, according to FE Analytics – 23.4 per cent from mid-cap portfolios compared with 16.6 per cent from the sector. A big part of this outperformance has been exposure to the housing sector, whether through housebuilders or other companies indirectly linked to this area. Star mid-cap managers such as Franklin Templeton’s Paul Spencer and Old Mutual’s Richard Watts have been particularly vocal in their support for the housing sector. It’s easy to see why. Investment Adviser’s research into the top holdings of 10 UK mid-cap funds found that between them they invest in 22 property-related firms. Of these firms, 20 have posted share-price gains of more than 25 per cent in 2013 alone. Examples held by several managers, including both Mr Watts and Mr Spencer, include Ashtead Group, a provider of heavy-duty construction equipment, which has gained 42 per cent so far this year; and kitchen-maker Howden Joinery, which is up 51 per cent. But there are increasing signs that the property recovery may have run its course already, and it may be time for the likes of Mr Spencer and Mr Watts to cash in on their profits. Last month property fund managers from Aberdeen and Henderson told Investment Adviser that the easy money may already have been made from property, with Aberdeen’s Sanjeet Mangat warning investors in her £176.2m Property Share fund not to expect its strong performance track record to be repeated. Ms Mangat’s fund is a member of the Investment Adviser 100 Club of outperforming funds and providers (see page 29). John McClure, manager of the top-performing Unicorn UK Income fund, said in June that he was steering clear of most housebuilders and developers as they were “structurally flawed” and did not have any substance. Miton’s Martin Gray, manager of the £883m CF Miton Special Situations fund, believes the “run has happened” and, while acknowledging some upside may remain, says he “wouldn’t buy in now”. City Financial’s David Crawford – who runs the firm’s top-performing long/short UK Equity fund – points out that strong performance based almost exclusively on government stimulus is bound to be short-lived. Investors only need look at the reaction of the equity and bond markets to the potential slowing of another form of stimulus, quantitative easing, to see that such catalysts cannot last forever. The UK government is desperate to prove it can help more people onto the housing ladder, and with Help to Buy it is helping first-time buyers to secure mortgages with deposits of as little as 5 per cent. Many of the same companies held by UK managers have specific ‘Help to Buy’ pages on their websites, detailing what aid there is available for first-time buyers – and giving a strong hint that this scheme has directly benefited them. “In a properly free market the value of houses would drop,” Mr Crawford says, adding that banks are still not lending prudently to borrowers trying to get on the housing ladder. He highlights banks that are granting mortgages equivalent to eight or nine times an individual’s salary, as opposed to two or three times. Martin Gray adds that the Help to Buy scheme “sounds to me like electioneering, which is a little worrying”. But for those still surfing the wave of housing-related stocks, the end is not yet in sight. Patrick Newens, small-cap fund manager at F&C, argues that the “electioneering” by the government through Help to Buy is likely to mean the scheme will last until at least the next election in 2015. He adds that house price-inflation has only just started feeding into companies’ figures and analysts’ forecasts. “Housebuilders are all seeing earnings upgrades and their margins are going up,” he says, leaving room for “decent upgrades” still to come. In addition, Aviva Investors’ Toby Belsom says it is not all about property prices and first-time buyers. He points to St Modwen Properties, LSL Property Services and Paragon Group – all top holdings in his UK Smaller Companies fund – as examples of property-focused companies that are not dependent on house prices. Instead the companies operate in longer-term projects, renting, and the secondary market. For these reasons Mr Belsom says he is “comfortable” with the stocks’ valuations, in spite of some very strong numbers so far this year. Opinion is split between those that did back housebuilders and have benefited from the move, and those who by their own admission have not, including Mr Gray and Mr Crawford. The debate is likely to continue for as long as the stocks themselves keep pushing higher, but with specialist property managers already having to hunt ever harder for attractive valuations, investors should be at least wary of increasing their exposure. Continue reading
EU Vote Bursts Bubble On Biofuel Future
DARAGH MCCULLOUGH – 29 AUGUST 2013 A recent vote by EU politicians makes the future of the nascent biofuel sector here even more precarious than it already was. A decade ago we were told that the world had entered a new post-peak oil era. With dwindling supplies, countries needed to take action to secure new sustainable sources of energy. Ireland was as good a case for bioenergy as anywhere, spending €6bn annually on imported energy. Everybody wanted a slice of that action. So ambitious targets obliging us to have 20pc of our total energy requirements coming from renewable sources by 2020 were signed into law. The Government pumped millions into schemes to incentivise farmers to grow new biomass crops such as elephant grass and put up oil-pressing plants. To the delight of the sceptics, much of this endeavour appears to be unravelling at the seams. Yes, wind-farms continue to be constructed and solar-panels adorn more and more roof-tops. But hundreds of acres of elephant grass, or ‘miscanthus’ to give it its proper name, have already been ploughed in by disillusioned farmers. The more enterprising individuals that invested millions in briquetting and oil-pressing plants have lost their shirts on the enterprises as market reality kicked in. Fossil fuels are becoming more expensive, but we are becoming more efficient at using them and extracting them. The actual end-game in terms of supplies is still so far off that the market still doesn’t price it into the equation. Irish farmers discovered to their cost that the rest of the planet is also able to generate masses of biomass – and ship it in here at a fraction of the cost that the Irish farmer needs to make a profit. Waste by-products such as palm kernals and cocoa shells are available for virtually nothing. The countries that produce these often can’t produce beef or milk at the same cost that we can in Ireland. Farmers and policymakers momentarily lost sight of what they had – a real competitive advantage in producing. At the same time, policymakers are still confused as to whether growing crops to fuel our cars actually makes sense. As a result, after their initial wave of enthusiasm, European politicians are slowing coming around to the idea that promoting the production of biomass and biofuels may not be the best use of our taxes. “Biofuels increase the demand for crops, which can encourage, at a global level, putting land into production, land that might not otherwise be used. And greater demand can lead to higher prices for food, hitting the poor hardest,” said Ireland East MEP Mairead McGuinness . As a result the EU recently voted to cap the amount of biofuel that can come from food sources at 5.5pc. But experts in Teagasc still believe that there is a future in the sector for those willing to take the risk. “We had to start somewhere in our search for alternatives to fossil fuels,” said renewable energy specialist Barry Caslin. “Growing miscanthus and oilseed rape crops to simply burn for heat is first generation stuff. Algae, waste digesters and enzymes are part of the second generation, and at some point we will be growing fuel in sustainable ways that is competitive with fossil fuels,” he said. In the meantime, Mr Caslin believes that Ireland is losing out on investment, jobs and economic growth if the Government doesn’t continue to support the advancement of the sector. It’s a classic case of the chicken and egg. Should we continue subsidising the development of renewable energy sources or should we wait until the market can support the development of the sector itself? Time will tell. Irish Independent Continue reading
Active vs Passive: The Pros And Cons
When it comes to exposure to the agriculture sector, could exchange traded products be the better choice? By Laura Mossman | Published Jul 01, 2013 The appeal of the agriculture sector for investors is easy to understand – long-term drivers of growth and short-term opportunities make it a compelling option. Indeed, with the United Nations anticipating the global population could reach 10bn by 2100, the demand for food coupled with pressure on the amount of farmland look set to drive up the price of agricultural commodities and necessitate more investment in technology to improve efficiency. While the fundamentals are convincing, the best way for an investor to access agriculture is not as clear-cut. From opting to take a direct bet on an individual stock through to investing in a passive or active fund, the choice can be bewildering. Neil Jamieson, head of UK sales at ETF Securities, says the best way to navigate the options is to examine the motivation for the investment. “Investors need to consider whether they are investing for diversification and optimisation of returns in their broader portfolio or… to tilt their equity exposure towards a particular theme,” he says. “While equities are geared to the business cycle and driven up and down by underlying sentiment, agricultural commodities do not, on the whole, behave like that.” The key benefits of going for an exchange traded product are fundamentally the same as those that underpin passive investments in general: they are available at a much lower cost, they tend to perform in line with the average actively managed fund over the longer term and there is a wide choice. “For broad exposure, a basket of, say, 30 commodities will generally rise a little faster than the MSCI World index, but also fall a little faster, too,” Mr Jamieson adds. “Equally, agricultural commodities also afford some tactical options.” In the actively managed fund space, there are a number of options for investors who are willing to take on the risk and reward associated with the equity market. “Within [equities], agriculture looks attractive,” says Mike Horseman, managing director at investment specialist Cockburn Lucas. “We tend to use active managers, utilising the good managers there are in that space, then perhaps blending in some passive building blocks.” Mr Horseman cites the Sarasin AgriSar and Baring Global Agriculture funds as the leaders in the sector, offering good performance and diversification. The former has secured an annualised return of 5.1 per cent since it launched in 2008, while the latter has returned 7.8 per cent on an annualised basis in the past three years. Other strong offerings include the Allianz RCM Global Agriculture Trends, First State Global Agribusiness, Eclectica Agriculture and JPMorgan Natural Resources funds. Henry Boucher, manager of the Sarasin AgriSar fund, suggests seeking to understand the definition of agriculture each manager is working to. “For a lot of funds, the focus is large-cap North American agriculture stocks,” he says. “Instead, we look not only at the production of food in the developed world, but also the consumption of food in the emerging markets. It provides a wider spectrum of choice, and goes further than simply looking at how different stocks are going to perform in line with different commodity prices.” Overall, much of the choice boils down to each investor’s views on active versus passive funds, plus their desire to gain exposure directly to commodities or via a broader equity portfolio. The passive options stand up well, but a number of outstanding active managers in the space have proved their ability to add alpha over the long term. Laura Mossman is a freelance journalist Continue reading
