Cholwill said he had modestly upped his holding in United Utilities, Severn and Pennon.
“Worries of renationalisation at punitive prices are overstated, I believe; ownership rights within the UK legal system are well entrenched and would provide significant protection to shareholders in the event of a radical Labour government being elected in the UK,” he said.
Labour leader Jeremy Corbyn reiterated the party’s plans to nationalise a number of public services and utilities in February.
Overall, Cholwill said fund activity had been relatively light in Q1. It slightly reduced its positions in Spectris, Spirax-Sarco Engineering, Diploma and Ricardo as shares had performed well and now only yield around 2%.
Cineworld doubled from just under 1% to 2% as the fund took up its full rights issue entitlement. Cholwill said there is “significant upside” in the shares if management can replicate their European success in the US market.
The fund is third quartile over more recent periods, returning 3.9% over one year, compared to 4.2% in the IA UK Equity Income sector, according to FE data. However, it is first quartile over three and five years, returning 19.9% and 66.3% respectively over each period, compared to 16% and 48.4% in the sector.
Overseas buyers waiting in the wings
Sterling weakness creates opportunities for international companies to buy UK corporate assets on the cheap, Cholwill said.
Buxton and Woodford have both pointed to recent corporate deal activity as a sign of value in UK companies.
“I expect to see further opportunistic takeover activity during the balance of 2018, which would clearly be supportive for the stock market. It also argues for keeping a significant overseas earnings element within any UK equity portfolio,” he said.
French shopping mall operator Klepierre’s bid for Hammerson interrupted its merger with Intu Properties, Cholwill noted. Klepierre approached Hammerson in April with a £5bn deal for 635p a share, 45% higher than its share price at the time.
Cholwill said: “Their bid approach highlights to us how cheap a number of the UK property majors are at the moment, typically trading at very large discounts to net asset value.”
Hammerson ultimately rejected Klepierre’s offer.
US growth would remain strong and support global growth, including the UK, he said.
“I expect UK economic conditions to remain challenging in 2018, and believe the longer term economic impact of Brexit may not be clear for quite a while.
“Nonetheless, progress was clearly made over the quarter by agreeing a transitional Brexit arrangement, allowing businesses time to plan. Overall, I would not be excessively bearish about the ultimate divorce from Europe.”
