Welcome back to the FTSE350 Tip column at Armchair Trader where we aim to provide market beating returns by picking the best opportunities within the UK markets.
After a strong rally at the beginning of the year, led by rate cuts in the UK and other global markets, performance for the FTSE350 has stalled. The index has traded flat since July. Many British investors, I am sure, are looking across the pond in envy as the US stages a ‘Trump induced’ second leg to its rally, with the S&P500 now up 25% YTD.
Our portfolio has certainly benefited from renewed optimism in the US. Our July tip Ashtead PLC [LON:AHT], a well known equipment rental business, is up 18% in the 3 month period as investors forecast an uptick in the construction and infrastructure cycle with Trump taking office in January.
However one recent tip has suffered, which today I will remove from the portfolio as the main investment thesis has not come to fruition, due to the recent changes in the US presidency. The tip I refer to is Ashmore PLC [LON:ASHM], the UK-based emerging markets fund provider that was on the cusp of a turnaround spurred by the prospect of a considerably weaker dollar. Emerging markets tend to do much better with a weaker dollar, and thus I expected AuM inflows into the asset manager to increase as the trajectory for the US dollar was negative. Now, with Trump in office, his policies are typically inflationary in nature (such as the removal of lower cost labour from undeclared immigrants, and trade war-related tariffs that increase the price of goods). This will likely mean the US Federal reserve have no choice but to maintain high interest rates, and thus the price of the dollar in reference to other currencies remains strong. Given this prospect, I think it is wise to take the small loss on Ashmore (-12%) and move on.
James's November Tip
My November tip looks to introduce a high quality FTSE250 business into the portfolio. This company is somewhat of a rarity for the UK market, offering a blend of fast growth and high profitability, providing a non cyclical, recurring in nature, technology enabled service to global corporates and financial institutions. Listing on the UK market in 2018 with a current market cap of £1.6bn, this company has plenty of scope to grow. It’s total addressable market within fund administrative services is very large, and peers providing similar services in the U.S have grown to the size of twenty fold that of the UK peer. Below I look to set out the investment case for this attractive business.
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