By David Ricketts
Of Financial News
The spread of the Delta variant of Covid-19 sparked stock market
tumbles on Monday, while the pound posted a five-month low against
the dollar. But fund managers are convinced that the U.K.'s FTSE
100 index, as well as several smaller companies, pose longer-term
"If the market decides to put a negative spin onto the rising
case numbers, that could create buying opportunities," said Steve
Clayton, head of equity funds at Hargreaves Lansdown.
"I suspect what hasn't happened yet is the emergence of a
general understanding that any reopening will have significant
human costs as rapidly transmissible variants find their way to the
vulnerable. That is ultimately what 'living with Covid' means."
Mr. Clayton said that if there were a significant pull-back by
the market in response to rising infections, smaller hospitality
names like Fuller Smith & Turner PLC and Young & Co's
Brewery PLC could be in play, due to their high quality freehold
estates in prime London and Southern locations.
"In the long run, we see those prime pub assets as only going up
in value, even if the short term is highly unpredictable," he
The FTSE 100 slumped 2.3% Monday, leasing a broader market
selloff in the U.S., where benchmarks had their worst day since
May. Companies that contributed to the U.K. stock market downtrend
were those in the travel and leisure industries, including British
Airways owner International Consolidated Airlines Group S.A., which
Cineworld Group PLC and cruise operator Carnival PLC also posted
falls, dropping 10% and 8% respectively.
U.S. stocks also suffered a drop, with the S&P 500 falling
by more than 2% on Monday.
"Investors often flock to companies with positive free cash
flows and net cash on the balance sheet," when markets wobble, said
Stephen Yiu, lead manager of the 850 million pound ($1.16 billion)
Blue Whale Growth Fund which has a large allocation to U.S.
He said his firm's portfolio, which has allocations to Alphabet
Inc, Mastercard Inc and Visa Inc, is "positioned on the right side
of structural drivers like digital transformation and digital
Mr. Yiu added: "These companies have both greater resilience and
growth prospects than the rest of the market so if they experience
a similar sell-off then that presents an opportunity."
Russ Mould, investment director at online investment platform AJ
Bell, said U.K. share price falls were a sign that investors think
the "reopening trade is now a dud."
"Many of the stocks leading the U.K. stock market downwards are
related to travel and leisure, suggesting that investors are
extremely worried that we've lifted restrictions too soon and that
another lockdown could be a month or two round the corner," said
Neil Ferguson, a government adviser and professor at Imperial
College London, told the BBC on Sunday that lifting Covid
restrictions in England would "almost certainly" lead to the U.K.
recording in the region of 100,000 new Covid cases a day, with the
potential for that figure to double.
However, Nick Burchett, director of investments at Stonehage
Fleming and co-manager of the TM Stonehage Fleming Opportunities
Fund, said: "Markets and companies might get a few problems or
setbacks along the way, but these could throw up opportunities for
stock pickers like us."
Alex Wright, manager of the GBP3 billion Fidelity Special
Situations fund, said the outlook for U.K. equities "looks
U.K. companies are trading above pre-pandemic levels, but they
remain cheaper compared to other regions, he said.
Mr. Wright is particularly bullish on value stocks--those
companies investors believe are undervalued relative to their
earnings and growth potential--and has added bank stocks to his
portfolio in recent months.
"The continued very strong credit performance also makes the
banks' balance sheets look extremely overcapitalized, with NatWest
Group PLC being the first to be able to start returning this
capital," he said.
"The bank has already recently used some of the excess capital
to buy back shares from the U.K. government. An improving
competitive landscape in Ireland has also led us to add to our
banking exposure there."
Elsewhere, Mr. Wright said his funds had added to travel and
leisure-related names, but he remains "relatively cautious" on the
(END) Dow Jones Newswires
July 20, 2021 06:58 ET (10:58 GMT)
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