FTSE 100 engineering company IMI (IMI) should benefit from a recovery in corporate expenditure in Europe, according to Margaret Lawson, manager of the SVM UK Growth Fund (GB0032064635). IMI works with international companies in over 50 countries to deliver engineering solutions to address trends such as clean energy, energy efficiency, healthcare and increasing automation.
"We are increasingly focusing the SVM UK Growth portfolio on more cyclical names, favouring those companies that will benefit from increased corporate expenditure, and or exposure to Europe," she says. "The best returns for many UK consumer facing stocks may have passed and opportunities are to be found in exporters to Europe.
"Europe will be a key theme in the coming months. The continent has had its economic difficulties, but with ongoing austerity curbing wage inflation and major cost-cutting programmes, many European companies are looking very competitive. If we start to see any pick-up in economic activity, these businesses are sitting on substantial operational leverage and could see earnings rise very quickly. Growth on the continent won't suddenly rise from zero to 3 per cent, but a return to 1 or 1.5 per cent would make many of these stocks compelling investments. We are therefore favouring exporters and businesses that trade with Europe. We also favour stocks which will benefit from a recovery in corporate expenditure. Our holdings include names such as IMI."
Also see this week's big theme about Europe
IMI accounts for 1.9 per cent of SVM UK Growth Fund's assets and is held as one of its tactical positions.
"Tactical positions allow us to alter the defensiveness of the portfolio quickly as the macro environment evolves," explains Ms Lawson. "At times where confidence is strong, we will increase exposure to stocks which are more sensitive to the favourable backdrop. When fundamentals deteriorate, we will aggressively increase our defensive exposure and sell down those high beta plays."
The last IC recommendation on IMI PLC shares was 'hold' at 1,492p on 22 August 2013. IMI is trading at 1,489p (as at 27 November 2013).
