Holliman ‘yet to find access to US energy’
Polar Capital’s North American fund manager Andrew Holliman has said he is yet to find the right companies to provide access to the US’s so-called ‘energy revolution’.
The rate of discovery and production of shale gas in the US has increased significantly thanks to hydraulic fracturing technology, known as ‘fracking’.
New sources of shale gas have offset declines in production from conventional gas reservoirs, in a change that has been hailed as an energy revolution in recent months.
But Polar’s Mr Holliman, who joined the firm in May last year along with former Threadneedle colleague Richard Wilson, has a weighting of just 2 per cent in the energy sector.
“There is some emerging value in the energy sector so we are doing some work, but I don’t like the fact that they are capital intensive businesses, a factor which has increased,” he said.
“It is difficult to find production growth and free cashflow. The energy renaissance is a great theme and an important factor that will have an impact on growth in the next five to 10 years. But it doesn’t necessarily mean I can find the right businesses.”
Elsewhere, the manager is more upbeat on the domestic construction sector, which he said is operating at “multi-decade lows”.
The manager has recently invested in construction materials and supply chain management company Wesco International and electronic product manufacturer Hubbell. He also highlighted engineering firms Roper and Danaher.
“We have a keen eye on valuation and when we are going for the domestic construction theme we are careful about not overpaying for stocks that are just housebuilders and pricing in a sharp recovery,” he said.
“It is a great top-down theme but there’s no point in investing if stocks are already reflecting it.”
He is shunning utilities and telecommunications companies entirely, with a zero weighting in both sectors.
“We’re not going for classic defensives,” he said. “Regulated utilities are expensive and are being driven to high valuations by this bubble-like thirst for yield but not all defensives are robust businesses.”
Mr Holliman said the fund, which he and Mr Wilson launched in November 2011, aims to hold between 40-60 stocks, meaning it is more
concentrated than the 70-80 stock portfolio he ran at Threadneedle.
“I always wanted to run a more concentrated portfolio, something I did at the start of my career [at Baillie Gifford] as it always made more sense to me,” he said.