Nigel Thomas, fund manager of AXA Framlington UK Select Opportunities, says that he’s not worried about 1970s-style high inflation but is preparing for the impact of changes in consumer preferences.
Meanwhile, he has added to two holdings in the portfolio that can potentially benefit from Donald Trump’s US administration.
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‘Things will become different’
Mr Thomas says: “My local newspaper, the East Anglian Daily Times, has a weekly section called Days Gone By. On 20 February this year, they showed the front page of their edition for the same date in 1975 and the headline proclaimed – wage rises hit record of 29.1% per annum!
“I don’t think that type of inflation is due here anytime soon. However, talking to homewares retailer Dunelm (which we hold in the AXA Framlington UK Select Opportunities Fund), they are increasing prices, by 5% on average. The weakness of sterling is the prime driver, although their supply chain has taken some of the strain.”
Politics has been dominating capital markets at every turn but Mr Thomas is focusing on consumer behaviour.
“Our investment mantra, ‘things will not necessarily become better or worse, but become different’ is confirmed week in, week out as the economy, companies and consumers change their preferences,” he says.
“Even politicians cannot change secular trends once established in the direction they are already going. I was staggered to learn that over a sunny weekend in March this year in the UK solar power produced more than six times more electricity than coal, and that on the Sunday and Monday, 15% of all electricity generated was from solar panels.”
Nigel Thomas buys more shares in Ashtead and BBA Aviation
Mr Thomas has been adding to the fund’s holding of international equipment rental company Ashtead, whose major trading subsidiary is US plant hire company, Sunbelt Rentals.
Mr Thomas explains: “Not only would the sector benefit from extra infrastructure spend, but there has been a secular change in the USA, regarding plant hire. In the USA in 2000, rental market share was only 20%. Today it is 55% and ownership 45%. In the UK, plant hire is more mature at 75% of the market.
“Also if Donald Trump is more pro-business, seeking supply side reform through lower corporate taxes, then that would benefit many companies exposed to this stimulus.”
Mr Thomas has also been adding to the fund’s holding in BBA Aviation, which refuels and services business jets across the USA and the globe and has a 55% market share in the US.
Mr Thomas says: “Although flight volumes have only been growing at 1% per annum post the credit crunch, according to data from the Federal Aviation Administration (FAA), fuel burn has been growing 8% per annum (FAA, Flightaware). Around 75% of BBA’s flight support services are attributable to refuelling.
“Reasons for the increased fuel burn seem to be longer flights and a trend to larger aircraft. But significantly there is a clear link between business confidence and business jet activity. Small business confidence in the USA is now at its highest level since December 2004. If corporate taxes are lowered during the Trump administration, this can only help confidence amongst BBA’s customers, and BBA itself, with so much of its earnings from North America.”