Nigel Thomas has been amplifying his exposure to online businesses on the expectation their lower running costs can mean greater returns for shareholders.
The manager of the £4.5bn Axa Framlington UK Select Opportunities fund said few in the market were predicting an earnings growth renaissance in the UK meaning it was important to identify businesses which are less cash intensive to run.
“We know the stockmarket is a discounting mechanism, but it is not apparent from many investment analysts that a boom in earnings is about to occur,” he said.
“Indeed, the deflation being witnessed by the food retailers, falling oil and gas prices for the integrated oil companies, and falling metal ore prices for the miners is leading to many downgrades to earnings expectations.”
Given this, the manager said he was optimistic about the fortunes of online companies.
“The internet is changing corporate architecture,” he said.
“For many, where you do not need retail outlets, offices or trade counters, then less fixed and working capital is needed.
“Margins are higher and the resulting cashflows overwhelm capital expenditure, so is returned to shareholders or the owners.
“However, the barriers to entry for enterprises on the internet are very low, but the barriers to success are very high, especially when you have a company that comes to dominate its market.”
One of his recent purchases is car ad website and magazine Auto Trader, which listed its shares on the stockmarket for the first time in an initial public offering at the end of March.
Despite 30 per cent of car classified adverts still being published in print, Mr Thomas thinks the website is not only “a good advertising medium, but the data gained from dealer transactions and pricing establishes the company as a business information tool”.
The manager also owns 5 per cent of the share capital issued by Rightmove, the online real estate portal. Rightmove is in Mr Thomas’ top 10 holdings, making up 3.2 per cent of his portfolio.
Another online company in his top 10 is Betfair, one of the biggest betting exchanges in the world, which makes up 3 per cent of his portfolio.
The fund has delivered a top quartile 88.4 per cent in the past five years against an average return of 67.7 per cent by the IA UK All Companies sector, according to data from FE Analytics.