LONDON Consumer goods businesses with exposure to emerging markets should be among the main drivers of growth in tough markets, the head of the 1 billion pound Witan Investment Trust said.
With growth in developed markets unlikely to bounce back strongly after dipping into recession last year, the fund is looking to increase its exposure to emerging markets to 15 percent from around 10 percent.
"Emerging economies are going to continue to be a relative buy ... they have growth at twice or more than that of developed markets," said Andrew Bell, chief executive of the trust, who started as chief executive at the 101-year-old trust in February.
The fund has gained 0.2 percent in the three years to end-August, outperforming the AIC investment trust global growth universe by 4.5 percentage points according to data from Lipper, a Thomson Reuters company.
The portfolio is also looking to gain exposure to rapidly developing economies through companies that have strong and growing sales there.
"Companies like Diageo (DGE.L), Nestle NESN.VX and Unilever (ULVR.L) have extensive exposure to emerging economies and they have brands that consumers there are quite keen to buy because they are perceived as better quality than locally produced brands," Bell said.
Some stocks look attractive on the basis of valuations, Bell said, pointing to the major telecoms and pharmaceuticals stocks like Vodafone (VOD.L) and GlaxoSmithKline (GSK.L).
"These are stocks that are on 5-6 percent yields and P/Es of 10 or even less, Bell said.
"They are priced at a discount to the market average as if they are poorer quality than the market average. I don't think they are. The underlying valuation is cheap, there is some growth going on, the dividend is growing."
He added that one reason that they look good value is because they are heavily owned by institutions like pension funds, many of whom are reducing their equity positions.
Another area where the fund is looking to drive returns is through buying assets it thinks are misspriced, and some private equity investment companies are seen as possible bargains.
"Specific investment companies like 3i Group (III.L), Electra Private Equity (ELTA.L), HarbourVest (HVPE.AS), at certain times of the investment cycle they are very cheap," Bell said.
"Private equity assets are typically cheaper-rated than quoted assets. We are buying them at significant discounts to their net asset values."
The fund has increased the number of managers that are taking an active risk and has increased its gearing, mainly by buying stock index futures, a new development.
"We are changing Witan from an ultra-conservative, possibly not active-enough investment policy, to increase the number of levers we can use to take advantage of more opportunities," he said.
(Additional reporting by Joel Dimmock; Editing by Greg Mahlich)
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