Kyle Williams, co-manager of the JP Morgan UK Equity Growth fund, picks some of his top non-tech themes.
For JP Morgan UK Equity Growth fund manager Kyle Williams, the microchip and the internet have been as transformative for life today as the rotary steam engine and the canal network were during the industrial revolution.
‘The internet has been incredible in what it has allowed companies and business models to do,’ he said. ‘We’re living through a period of accelerated change and we’ve largely been on the right side of that.’
Has the recent sell-off in big US tech stocks tempered the conviction Williams and his co-manager Ben Stapley have in growth investing? ‘High growth sectors like tech and biotech have done very well recently, but growth is very dynamic – you can find it in many different parts of the market,’ Williams said.
Fiscal stimulus
Governments across the world have pumped vast sums of money into their economies. One way to put more money into the economy is to increase public spending on infrastructure. The Citywire A-rated managers are playing this theme through buildings materials firm CRH, which they added to the fund in September.
It has significant exposure to Europe and North America and boasts a healthy balance sheet. Williams expects it to take advantage of current market conditions to explore further growth investments or return surplus cash to shareholders.
E-commerce
The managers have been increasing exposure to online retailers, adding online supermarket Ocado to the 126-stock portfolio in April and fashion e-tailer Asos in August. In July, they bought Kingfisher, owner of B&Q and Screwfix, which beat market expectations in the second quarter. They believe the market has underestimated the demand for home improvements.
That also underpins a longer-term holding in Dunelm Group. The development of its online offering has made it a big beneficiary of higher demand for home improvements amid lockdown. ‘Its contactless click-and-collect option has allowed it to operate as a “dark store” and helped to insulate its sales,’ Williams said.
Renewable energy
He pointed to growing public awareness of climate change issues and more developed world governments and companies outlining net zero carbon emissions policies. That will require a significant increase in renewable energy production.
There are limited ways to play this theme through the UK stock market, but the fund took a position in SSE in February. It has a portfolio of around four gigawatts of onshore wind, offshore wind and hydro, and aims to treble its renewable energy output to 30 terawatt hours by 2030, making a significant contribution to decarbonising the power sector and achieving net zero emissions by 2050.
Digital transformation
Industrial software company Aveva has been in the fund since October 2017, but the case for owning it has strengthened this year as more businesses adjust to remote working.
‘It allows international companies to keep track of their assets and how they’re being used, thereby enabling them to improve efficiency, increase flexibility and reduce operating costs,’ said Williams.
In the year 2030
Britain has a lot of catching up to do in terms of industrial automation. Its manufacturing sector has just 89 robots per 10,000 employees – the lowest level of any major economy – compared to 918 in Singapore, according to the International Federation of Robotics. ‘Covid-19 has created a new incentive for businesses to supplement traditional employment and find more reliable workers and processes that can’t succumb to illness,’ said Williams. ‘If the UK is to remain competitive, we have to address the productivity gap that the Covid-19 pandemic has likely widened.’ He cites Aveva as a good play on the theme until automation becomes more widespread in the UK.
