Lecoq and Huet also think the media sector is a good place to be currently, arguing ITV and Sky are attractive targets for telecoms companies like US giant Liberty Global that are hungry for additional content.
The two also predict the utilities sector will be a hotbed of M&A activity. Water companies in particular remain very attractive in terms of cash generation, visibility and dividend payments due to the regulation of the business, said Huet.
“We hold Severn Trent and United Utilities,” he continued. “Of course they are domestic players, but their businesses have very stable and predictable activity. Also, a little bit of inflation could be good news to the sector since the prices of water are linked to the consumer price index. They are the perfect targets for investors looking for yield.”
“The UK market has underperformed the rest of Europe between 2012 and 2015,” said Lecoq. “Only this year is the UK starting to catch up, which means stocks are still trading at a major discount.”
Huet added: “There have been outflows in UK stocks for the last three years so we expect that trend will reverse. Still, the asset class is underweighted by many asset allocators. Maybe what we need is a little more stability as far as the currency is concerned before investors are willing to jump in.”
