Woodford Equity Income, Jupiter UK Growth and Franklin UK Mid Cap are among several funds that could benefit from announcements in this week’s Budget, according to Chelsea Financial Services’ James Yardley.
The senior research analyst said changes to personal savings and investments “were mercifully light” in chancellor Philip Hammond’s speech, which FE Trustnet considered in detail on Wednesday.
However, he said there were a couple of significant spending measures that could provide investment opportunities.
As such, Yardley has highlighted five funds that could benefit from the Hammond’s latest housing stimulus as well as the government’s steps towards becoming a leader in the development and deployment of digital technologies.
“For me there are quite a few positives in terms of both technology and housing spend,” the analyst said.
“Looking at housing first, you do have to factor in that housebuilders have had an incredibly strong run over the past few years and are arguably quite expensive now, particularly when the economy isn't as strong as it could be.”
As the below chart shows, despite a fall following the UK’s vote to leave the EU last June, the major housebuilders have strongly outperformed the FTSE All Share over five years.
Performance of stocks vs index over 5yrs
Source: FE Analytics
“However, the removal of stamp duty for first time buyers – up to £300,000 – the determination to make more land available for housing, the speeding up of the planning process and the commitment to build more houses, could give the sector and those companies linked to it a further boost,” he added.
Turning to technology, he said that artificial intelligence (AI), 5G mobile networks, and full fibre broadband were also exciting opportunities following support announced in the Budget.
“Britain is starting from a great base and this support should help fund smaller businesses. Technology managers we speak to are very exciting about AI in particular,” Yardley said.
The first fund expected to benefit from these measures is FE Alpha Manager Neil Woodford's five FE Crown-rated Woodford Equity Income.
The £8.3bn fund has holdings in housebuilders Taylor Wimpey and Barratt Developments, as well as Purplebricks, the online estate agent, which should benefit from the stamp duty exemption announced for first-time buyers.
Additionally, the fund also includes lots of small tech start-ups and broadband company CityFibre, which could be in-line for a boost from the Budget’s focus on innovation.
However, the high-profile fund has had a difficult time recently, in the bottom quartile of the IA UK Equity Income sector over the last one and three years, as the below chart shows.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
In response to the Budget, Woodford said he had been pleased by the announcement in the Budget of a £2.5bn investment fund, to help young, knowledge-based British businesses access scale-up capital.
He said: “The ability to access capital is profoundly important and the significant improvement in the amount of it availability of this capital will help young, knowledge-intensive British businesses scale-up and fulfil their long-term potential.”
The fund is 3.18 per cent weighted to technology, an overweight of 1.22 percentage points to the FTSE All Share benchmark.
Woodford Equity Income has a yield of 3.57 per cent and a clean ongoing charges figure (OCF) of 0.75 per cent.
Another beneficiary from the housing announcement could be the £1.3bn Jupiter UK Growth run by Steve Davies, according to Yardley.
The fund also holds online real estate specialist Zoopla and kitchen maker, Howden Joinery. Like Woodford, Davies also holds Taylor Wimpey and CityFibre.
Davies also has a top 10 position in Thomas Cook, which could benefit from the freeze on the short-haul flights tax.
The other fund looking to take advantage of the cut in stamp duty and other housebuilder-friendly policies is the £1bn Franklin UK Mid Cap run by FE Alpha Manager Paul Spencer, Mark Hall and Richard Bullas.
“This mid-cap fund holds Ibstock, a brickmaker which could do well on the back of increased housebuilding, and Bellway. It also invests in Howden Joinery as well as Homeserve, a heating installation company,” Yardley said.
Away from the housebuilders, the £196m L&G UK Alpha Trust could see a boost if its holding in FTSE AIM stock Seeing Machines continues deliver.
The company is up by more than 50 per cent over the last five days as the company, which makes intelligent sensory algorithms helping machines to understand people, saw a potential boost from increased spending for innovative companies.
“It's being used to monitor drivers and increase safety, as well as the move towards driverless cars because it helps the machine to make instant decisions based on what is happening inside and outside the car,” Yardley said.
The L&G UK Alpha Trust is run by Richard Penny and has an all-cap approach with more than 50 per cent of the portfolio invested in stocks with a market capitalisation of under £250m.
Technology is the biggest single sector in the portfolio at 25.24 per cent – a significant overweight – while healthcare makes up 25.11 per cent.
The fund has been a top quartile performed both in the very short term (over one year) and the long term, returning 185.87 per cent over the last decade, as the below chart shows.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
L&G UK Alpha Trust has an OCF of 0.88 per cent.
The final strategy that could benefit from the Budget, according to Yardley, is the £39m Smith & Williamson Artificial Intelligence fund run by Chris Ford and deputy manager Tim Day.
“This fund was launched relatively recently, hoping to tap into the opportunities created by the development of AI,” the analyst said.
“It holds overseas stock Nvidia, a company which has a background in gaming and has since moved into automotives as a new business area. It is currently one of the most strategically important component companies in the AI world.”
The fund, which was launched earlier this year, has an OCF of 0.95 per cent.