AXA Investment Managers’ Nigel Thomas – noted for his growth at a reasonable price (GARP) approach – told me this week that consumer stocks, both retail and media, make up a big overweight in his £4.2bn AXA Framlington UK Select Opportunities Fund.
This includes his “thrusting three”, Betfair, Auto Trader and Rightmove, as well as his largest holding ITV.
“Rightmove and Betfair are at PE’s of 30x plus and that’s what they should be because they are throwing off lots of cash doing special dividends and share buybacks,” he said.
“That’s why we have had PE expansion and the growth stocks have done well. We’ve gone back to the time like the [early 1970s] ‘nifty fifty’ period when Polaroid was on 120x earnings.
“We’ve gone back to an era of low interest rates and low growth, and if you are growing your dividends and earnings at 20% per annum plus then you will be highly rated.”
An alternative view comes from Jim Wood-Smith, head of research at Hawksmoor Investment Management.
Despite predicting tougher times for the economy, he believes that equity performance is likely to mirror 2015 in being “more reliant on avoiding mishaps, for which the penalties have been disproportionately harsh, than on picking outstanding winners”.
He adds: “We look to the pedestrian growth of the UK, Europe and US to be sufficient for us to continue to find good companies performing above expectations. There will be a time to buy resource companies and emerging markets again, but we will not be first in the queue.”
