The JPMorgan UK Strategic Growth fund has sold out of Royal Dutch Shell as the oil and gas sector is hit by weak prices and disappointing earnings.
Shell, which at the end of April was the fund’s seventh-biggest holding, has been sold following the announcement of its merger with UK-based gas giant BG Group.
“The weak oil price and the deal with BG Group means they will have to raise capital and dilute earnings, so we sold our position,” co-manager Ian Butler explained.
However, Mr Butler said the resulting lower petrol and flight prices will feed into the consumer-led recovery backed by his fund – a situation that will leave the average consumer with more money in their pocket.
He said the recent Conservative majority win in the UK general election was generally positive, both for the market and the fund’s overweight position to domestic consumer cyclicals such as house builders, financial services and retailers.
In the retail arena, the £194.1m fund recently purchased Marks & Spencer after being encouraged by the store’s first profit rise in four years, including strong general merchandise sales that surpassed market expectations.
He also sees Costa Coffee and Premier Inn-owner Whitbread as a key beneficiary of the improving consumer story, as leisure activities are set to benefit from the rise in disposable income.
Within the financial services sector Mr Butler has backed alternative loan provider Provident Financial, which he said is set to benefit from rising GDP and the public’s increased propensity to borrow.
UK Strategic Growth has an underweight position in banks and has no holdings in Lloyds, Barclays or RBS, but the manager said he is reconsidering his position.
“We have seen a couple of weak updates from the companies in that sector, but more recently [they] have turned more positive and we are starting to see an improvement in fundamentals, including more lending, [so] that underweight may well change in the future,” Mr Butler said.
The news last week that the fund’s second-largest holding HSBC is cutting 8,000 jobs in the UK was cautiously welcomed by the manager.
Mr Butler said: “The news is positive because they continue to focus on cost-savings. However, some of the market says they are not really doing enough. We do not have a hugely high conviction in the stock but focusing on Asia would be a positive.”