RLAM UK equities trio: Where we are finding value

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PARTNER INSIGHT: Royal London Asset Management (RLAM) equities trio Richard Marwood, Henry Lowson and Martin Cholwill talk about seeking value and which stocks they are selecting in the current investment environment.

Talking to Investment Week editorial director Lawrence Gosling as part of a new series of video interviews, Richard Marwood, co-manager of the £794m UK Growth fund, said the "polarised" nature of the market from a valuation standpoint had created opportunities on an individual stock-picking basis.

He said he wanted to avoid companies on either end of the spectrum, which means domestically-focused consumer businesses or large international stable businesses "trading on big multiples" as they are linked to the macroeconomic outcome.

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Marwood said: "Individually, we are finding lots of businesses which we think are interesting such as chemicals company Johnson Matthey and Domino's Pizza.

"I am trying to get a good spread of types of business but with similar characteristics of not too much debt, good margin structures and good cash generation."

Martin Cholwill, manager of the group's £1.9bn UK Equity Income fund, also said the investment landscape was currently beneficial for stock pickers.

He said the "classic" income strategy of buying good companies when they are out of favour would still work well in this environment. However, he warned it was important to avoid "value-traps".

"There are plenty of value traps out there," Cholwill said. "But often they are characterised by high levels of debt, which is why you do not want to focus on P/E ratios.

"Share prices are often driven by P/E ratios, which is where the opportunities come by looking at other metrics."

Despite valuations on an aggregate level remaining high in the UK small-cap universe, Henry Lowson, manager of the £274m RLAM UK Smaller Companies fund, said it was still possible to find good value in this area versus large- and mid-cap companies.

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"Stocks we bought last year which have come more into favour include companies such as McBride, which had a capital markets day recently," Lowson said. "It is trading on 14x earnings and delivering 15%-20% earnings growth."

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