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Building Britain

14 July 2017

George Luckraft of AXA talks about post-referendum opportunities and why he remains bullish on UK housebuilders.

“Brexit will produce opportunities,” says George Luckraft of AXA Investment Managers, manager of the St. James’s Place Allshare Income fund.

“The reaction of markets to the referendum vote was to totally de-rate UK domestic stocks. Understandably, the currency was a negative, but the share price reaction actually meant you were discounting quite a lot of bad news. That overreaction meant opportunities,” he says.

Luckraft bought a number of domestic stocks after the vote. One was Forterra, a building products manufacturer that he saw as a potential beneficiary of the referendum outcome.

“The import of bricks had risen in previous years,” says Luckraft. “Both political parties are expecting to build lots of houses. I paid £1.95 in a clear-out when private equity exited the business and within three or four weeks it had risen to £2.60. It’s a strongly cash-generative company and in two to three years it could be paying out special dividends.”

Indeed, the UK housebuilding sector has provided Luckraft with other investment targets, among them Bovis Homes Group, which also he bought in the aftermath of the referendum.

“They’ve got virtually nothing inside the M25 and so are in a relatively strong position within the sector,” says Luckraft, referring to the differing outlook for London as against the rest of the UK. “I bought it on book value [i.e. its actual balance sheet value at the time] last autumn after it got some bad press. The CEO has since put his money where his neck is with a seven-figure stock purchase. He will slow the company’s growth ambitions and has promised to return anything above net cash.”

Yet Luckraft’s interest in the housing sector also extends beyond traditional stocks. One of his most recent purchases was PRS REIT (real estate investment trust), a new vehicle that owns housing in the private rental sector. PRS REIT has a very important shareholder on its side too – the UK government.

“The government took a 10% stake through the Housing and Communities Agency,” says Luckraft. “Their REITS first investment, secured via their investment advisor Sigma Capital, is close to Liverpool city centre, with follow-up investments in the north west. Once fully invested there should be a 6% yield with scope for both income and capital growth due to the open market value being higher than their purchase price.”

Momentum in such sectors might remain strong while interest rates are subdued, but in recent weeks there have been growing signs of hawkishness at the Bank of England, and a rate rise later in the year is now priced in on markets. Yet Luckraft remains sceptical that high inflation will persist for long.

“Later this year the impact of the sterling decline should tail off – plus the oil price has been weak,” he says. “Going into 2018, inflationary pressures could abate. I’d be very surprised if they did anything – the house view is that rates don’t move until 2019.”

Fuel and finance

The fund also has significant holdings in the financial and energy sectors. Although major financial names are certainly significant within the portfolio – HSBC and Legal & General both figure – Luckraft has also invested in some niche, specialist lenders, such as UK Wind and Foresight Solar.

Such companies have benefited from government backing. Moreover, although government support (in the form of Renewables Obligation Certificates, or ROCs) is now on the retreat, these companies are now on the cusp of a far more exciting development.

“No more ROCs are being given, but within 18 months the cost of solar will potentially make sense without state aid,” says Luckraft. “What does that mean for oil demand?”

Although he holds both BP and Shell within the fund, Luckraft has worries about dividend sustainability, should oil continue the slide that began earlier this year.

“Shell can’t sustainably manage the dividend if the oil price falls much further – if oil prices slide into the low $40s, Shell could be hit a little,” he says. “BP, on the other hand, reckons it can fully cover the dividend at $40.”

Foreign forays

Although Luckraft remains relatively bullish on the UK economy, he also seeks out companies with a significant income stream across the Channel.

“UK-listed income stocks with a Continental income stream are likely to be rerated,” he says. “Low & Bonar [a UK-based manufacturer] only gets 5% of its earnings from the UK – and a lot more from Continental Europe. It has just set up a Chinese factory too.”

Yet despite looking to benefit from companies’ foreign earnings, Luckraft largely eschews the opportunity to buy some stocks in other countries, maintaining his focus on those listed in the UK.

“I’ve got much more chance of understanding who the rogues are here than I do in a foreign country and a foreign language.”


The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested. 

The opinions expressed are those of George Luckraft as of July 2017 and are subject to change at any time due to changes in market or economic conditions.  This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy.  The views are not necessarily shared by other investment managers or St. James's Place Wealth Management.

AXA Investment Managers is a fund manager for St. James’s Place.

Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.


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