Dixon warns of lack of investable UK equities

Dixon warns of lack of investable UK equities

Man GLG Undervalued Assets fund manager Henry Dixon has said viable UK equity investments remain few and far between in spite of the recent market sell-off.

Mr Dixon holds 60 positions within his £365m fund, but he said just five other stocks in his investable universe were currently under consideration for inclusion.

Notwithstanding the 12 per cent drop suffered by the FTSE 100 between April and August, the manager said the index had been getting “progressively more expensive” in recent years, particularly as company profitability had stuttered in the period.

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“The market’s the most expensive it has looked for some time on our basis of value,” he said. “A number of shares have not progressed from a profit standpoint, but they have uprated sharply.”

Mr Dixon said the situation contrasted sharply with those seen in 2011 and 2013, when he had identified at least 100 interesting stocks on top of the 60 in his portfolio.

He said: “The most exciting time was post August 2011. That for us was the cheapest moment in the UK market. Then we had 60 shares and another 120 could be in [the portfolio].”

By contrast, the manager cited the example of a stock which more recently had soared in spite of company profits stagnating.

He said the unnamed firm’s operating profits had been flat or negative in each of the past five years, while its dividend had been cut and debt had risen by a third. However, during the period the company’s share price increased by more than 100 per cent, he noted.

Resources companies are one under-pressure sector on which Mr Dixon has mixed views. He said a number of smaller companies could fall by the wayside as a result of lower spot prices, but he remains positive on selected large caps.

The manager added: “BP and Shell have been very effective at cutting their costs.

“History has shown that this is a sector that has managed to lose about one third of its cost base. These are firms that can cap their costs.

“It’s tempting to think the oil price fall has never happened before but it has. It would only be in 2000 that the price of oil got back to $25 [per barrel].

“I think consolidation will be a big feature in the oil and mining markets in the next few years.”

The fund had 3 per cent exposure to BP and a 2.8 per cent holding in Rio Tinto as of July 31.

Mr Dixon’s Undervalued Assets fund was launched in 2013 as a mirror of the identically named portfolio he first ran when at Matterley.

His GLG mirror fund has returned 3.9 per cent in the past year, according to FE Trustnet, compared to a 0.2 per cent average for funds in the Investment Association UK All Companies sector.