Each week. a professional investor tells us where he'd put his money. This week: Colin McLean, SVM Asset Management.
Our approach to growth investing is built around core long-term holdings, but we have the flexibility to make more tactical investments as well. For example, we expect 2017 to bring a further pick up in inflation in the US or UK and eurozone. Some growth stocks will still perform well in this environment, but it will be by organic growth and self-help, rather than by their shares trading on higher valuations. In the short term this favours value stocks, particularly industrials and commodities. The rise in interest rates and steepening of the yield curve should also boost bank profits.
That said, in recent months investors have rotated away from shares of those steady growth businesses that are viewed as bond proxies. This rotation has moved a number of growth stocks to attractive valuations once again. Many of these firms also have restructuring potential. All this merits some portfolio rebalancing to capture these opportunities.
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GVC Holdings (LSE: GVC) is a multinational sports betting and gaming group. It operates a number of different brands, including Sportingbet, bwin and Foxy Bingo. Historically, many investors have been put off by GVC's focus on unregulated markets, this being reflected in the stock's historic lowly rating. However, regulated and taxed markets now account for around half of the group's revenues. Importantly, Germany has replaced Turkey as GVC's largest single market. GVC is well placed to deliver both cost and revenue synergies following the 2016 acquisition ofbwin.party. We think the market has been overly cautious about its prospects.
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Barclays (LSE: BARC) is involved in activities spanning retail, wholesale and investment banking, and other investment services. For banks, small changes in the yield curve can have a significant impact on revenue. In the US, UK and Europe, rates have risen and the yield curve has steepened. The group's investment bank still has a strong franchise in the US and should benefit from improving confidence in markets. It also has potential to sell non-core units and reduce costs.
The shares remain lowly rated in relation to tangible assets relative to US and European peers. We believe some of the benefits of an improving environment and Barclays' own restructuring will attract investors.
UDG Healthcare (LSE: UDG) assists healthcare companies to outsource non-core, fixed-cost activities, providing services into the healthcare supply chain. Its largest division, Ashfield, represents 60% of total revenues. UDG has a strong growth record, both organically and by acquisition. Recently, it has been left behind as investors have focused on value, but investors may be underestimating the trend towards outsourcing for drug commercialisation and regulatory requirements. UDG should benefit from this.
