Revealed: The sector to avoid as sterling falls, and the one to buy Revealed: The sector to avoid as sterling falls, and one to buy

Alastair Gunn, who manages around £1 billion of investor’s capital at Jupiter, has revealed the sector he is avoiding, and the one on which he is keen as sterling falls.

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Gunn principally manages the Jupiter Distribution Fund, which has returned 41 per cent over the past five years, compared to 25 per cent for the average fund in the IA Mixed Investment sector in the same time period.

The sector on which he is not keen is retail. He commented, ‘there are long-term secular pressures from online, rising business rates and the national living wage.’

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He continued, ‘and on that of that, many of the general retailers, the clothing retailers, have costs almost entirely in dollars. Cotton is imported and priced in dollars. But they are exposed to the UK consumer, who is faced with higher prices and lower spending power. So the retailers face higher costs and may not be able to pass those costs on.’

A sector on which he is keen is the UK housebuilders. Gunn commented that, ‘there is a long-term lack of housing in the UK, it has been the case for the past ten years. So there is demand, plus the cost of borrowing is low, and will remain low, there is less competition for land than in the past.’

He added, ‘when I look at the house builders, even if the share prices have under performed, I see the yield they pay and the cash they generate, and I think they can afford to keep paying the yield until the shares start to perform.’

Gunn takes the view that the UK economy has performed better than many expected since the EU referendum vote. He said, ‘life just went on, people just got on with it. If you are an international investor then sterling assets are now cheaper, and I expect to see more merger and acquisition activity.’

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But he added, ‘the bottom line is one has to assume lower growth in the years ahead, and that will be bad news for many of the domestic stocks.’

A FTSE 250 stock on which he is rather keen at present is Melrose. He commented that the company, which invests in other industrial companies and ‘turns them around,’ ‘has excellent management, they have made a lot of money for shareholders in recent years.’

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