Invesco Perpetual’s Stephen Anness and Andrew Hall have sold down high-profile global equity names as markets’ willingness to “pay any price” for quality stocks force the pair further into value positions.
Mr Hall, co-manager of the £170m Invesco Perpetual Global Opportunities fund, has moved away from stocks such as Alphabet (Google) and British American Tobacco (BAT), favourites for growth and income managers alike.
The fund sold out of Alphabet the day it became the world’s largest company, and cut exposure to BAT despite “great admiration” for the firm’s defensive nature.
On Alphabet, Mr Hall said: “The valuation has re-rated significantly, and there is the law of large numbers: it gets harder to compound revenue growth at 15 per cent when you’re the largest company in the world.”
In place of these stocks, the managers have added exposure to US banks and oil and gas stocks, as well as global industrials this year in a bid to find better opportunities.
“Value stocks are so unloved by the market [that] it is willing to pay seemingly any price for anything with quality,” Mr Hall said.
The manager said the US banking sector was at 75-year relative lows on a price-to-book basis. He said uncertainties over regulation and capacity to return capital to shareholders were contributing to poor market sentiment on the sector.
“The attraction was valuation but aligned with that is businesses which are fundamentally strong and difficult to disrupt,” he said.
The fund’s largest holding is now JPMorgan Chase, a 6 per cent position. Mr Hall said the bank was a quality business, dominant in its markets, well-capitalised and run by a strong management team.
“[JPMorgan] finds itself in a sector that is out favour but it is a quality business, just in a sector the market does not think is quality,” he said.
The fund has 33 per cent in financials, 17 per cent in industrials and 13 per cent in energy. Financials have weighed on returns year to date but this has been offset by the 13.5 per cent rise for global oil stocks.
Mr Hall and Mr Anness have large holdings in Royal Dutch Shell and Statoil, which make up close to 10 per cent of the fund.
Mr Hall said the oil sector had never been cheaper, which was understandable when taking into account both the paucity of results from the preceding capex boom and the oil price plummet.
However, the pair felt some stocks with a cheaper cost of funding were still a good bet.
“The rhetoric of [oil companies’] management has chang-ed,” Mr Hall said. “They are focusing on returns on capital and cash flow. With a value-over-volume strategy, focusing on cost and capital discipline, they can be fundamentally better businesses than they were in the past.
“But we’re doing it in a very risk-conscious way. It is not a bet on the oil price recovering; it’s the strongest companies with the strongest balance sheets.”
The Invesco Perpetual Global Opportunities fund has returned 25 per cent over three years compared to 18 per cent from the IA Global sector, according to FE Analytics.
