Moore says there is an increased awareness among individuals that “they have to look after their own financial affairs”, and this creates the longer-term growth story for the sector, while a cyclical economic recovery will likely boost asset prices, which helps the revenues of these businesses.
Small-cap stars
Richard Penny, UK equity fund manager at Crux, says most of the “obvious” opportunities from the economic recovery, particularly in the large-cap and at the upper end of the mid-cap space, have been made. He particularly cited housebuilders as an example of where this has happened.
He says some of the more defensive companies on the market, such as utility companies and sandwich makers, sell products for which there is constant demand. At times of market optimism, this predictability is viewed as less attractive than the potential, if somewhat less certain, earnings of more cyclical companies.
Penny is also keen on some of the hospitality companies as he says the demise of many of their rivals means they can access more good sites and at more attractive rates. He says a number of people in the hospitality industry have expressed “excitement” at the opportunities for expansion.
Louise Kernohan, UK equity fund manager at BNY Mellon, says large-cap pharmaceutical companies have mostly been “left behind” by the equity market rally, and so offer an opportunity.
She says these companies have extensive intellectual property that will be held to generate returns for many years to come.
Banks are among the most cyclical of assets as they benefit when economic growth is stronger as demand for loans rises, but Chris Murphy, UK equity fund manager at Aviva Investors, says he is reluctant to invest in banks, despite the cyclical advantages, due to the prevailing regulatory climate.
Instead he has invested in companies such as BAE Systems and Melrose, which are less obvious beneficiaries of the cyclical changes, but where he has strong belief in the management teams.
He says the shares of those companies were sold off along with the rest of the market in 2020 — but unlike other parts of the market, have not bounced back as strongly.
