Neil Hermon, who runs the £781m Henderson Smaller Companies investment trust, has been buying businesses with substantial overseas earnings.
He said about half the sales of companies in the trust are overseas.
“There is obviously a lot of uncertainty in the UK economy and you can’t ignore that, we have been avoiding the property companies and the general retailers as being businesses most likely to be affected by any economic slowdown,” he said.
He said many parts of the UK economy are “thriving”, particularly industrial companies.
Mr Hermon said improved global growth means demand for the products sold by industrial companies has picked up, while UK industrial companies can take advantage of sterling weakness to win new business.
The fund manager said: “The market isn’t stupid, so the valuations for those companies have risen, while the valuations for the domestic focused names have fallen .
"But I don’t think the valuations for the industrial companies are excessive, while the domestic earners, when they have bad news, the share prices fall a lot, which shows that even if they are on cheap valuations, they can still fall further.”
An industrial company on which he is particularly keen is Ultra Electronics, a defence contractor.
Mr Hermon said the outlook for the company has improved as global defence spending has started to rise after several years of decline, and around 60 per cent of earnings are in the US.
He said: “They are exposed to the good areas of defence spending, such as cyber security and marine warfare, where the budgets are going.”
Mr Hermon has also been buying shares in Melrose Industries. This is effectively a publically-listed private equity company.
Melrose buys under 100 per cent of the shares in an underperforming business in any sector and turns it around. The fund manager said the Melsrose management team have a proven track record of delivering strong returns using this method.
He said: “As an investor you are essentially buying the management team’s skill, but they have proven they have that skill on many occasions.”
Darius McDermott, managing director of Chelsea Financial Services said he doesn’t recommend the Henderson Smaller Companies Investment Trust as the performance isn’t consistent enough.
The trust trades at a discount to net assets of 14 per cent.
david.thorpe@ft.com
