Each week, a professional investor tells MoneyWeek where they’d put their money now. This week: John McClure, senior investment manager, Unicorn Asset Management.
Britain’s return to growth last year was assisted by very low interest rates. Looking forward, interest rates must trend higher and government tax and spending measures will have a negative impact on domestic economic activity.
Internationally, meanwhile, we remain confident that the dynamic investment-led growth in much of the developing world can continue. This growth will inevitably slow, as both interest rates and energy costs rise. But there are few signs of overheating or excessive debt. Indeed, China could easily finance faster consumption growth through a higher exchange rate.
Any genuine UK revival needs to be based on an improved performance from our exporting and import-competing companies. This is the only realistic way of reducing the country’s very substantial public sector and balance of payments deficits, without a renewed deep recession. Coalition economic policy is based on this very strategy. Our investment approach seeks to take advantage of the best opportunities available given this backdrop.
We believe that high-quality UK companies with significant exposure to rapidly growing overseas markets will continue to perform well in 2011. Many of these companies command world leading positions in their particular field and remain at the forefront of innovation and product development. Soundly managed businesses with strong balance sheets and an ability to generate cash should continue to provide attractive dividend returns for investors. Indeed, all three of our stock picks have recently announced notable dividend increases.
Renishaw (LSE: RSW) is a world leader in metrology – the science of measurement. The group manufactures high-precision products for use in a diverse number of industries worldwide, including automotive, aerospace and healthcare. Interim results released in January outlined significant growth in all geographic areas, with China becoming the group’s largest single market (UK sales accounted for just 5% of turnover). The company operates a progressive dividend policy, recently increasing the interim dividend by 33%.
Next up is Domino Printing Sciences (LSE: DNO). It develops and manufactures industrial printing equipment. This has applications globally in a number of different sectors including pharmaceuticals and food and beverage. The successful management of costs during the economic downturn (the workforce was reduced by 10% in 2008 alone) has seen a strong improvement in margins as volumes have returned. In December the company announced a 20% increase in the total dividend for the year to 31 October 2010 – the 25th consecutive annual dividend increase since listing in 1985. The company’s strength in fast-growing markets such as China, India and South America should fuel future growth.
Our final selection is Spirax-Sarco (LSE: SPX), an industrial engineer that generates nearly 90% of sales outside the UK. The company is a world leader in the control and efficient use of steam and industrial fluids. In addition to a recently announced special dividend, the total annual dividend increased by 19% in 2010, contributing to an annual compound growth rate of 11% over the last 43 years.