Leading investment trust fund managers have revealed their top stock selections for the coming year.
Ranging from a leading consumer healthcare business to Vietnam’s top technology company, investment trust managers share some of their best ideas for the new year with UK Investor Magazine readers.
Ian Lance, Fund Manager, Temple Bar Investment Trust
Find out more about the Temple Bar Investment Trust here.
Marks and Spencer (LON:MKS)
Marks & Spencer’s (M&S) has seen a few ups and downs over the last twenty years, but its most recent renaissance began in earnest in 2017 with the appointment of Archie Norman as chairman. Having previously turned around Asda, Norman set about overhauling half of senior management, modernising the store footprint and refreshing clothing lines to attract younger customers. In food, the company retained its premium appeal while expanding to cater for weekly shops. Meanwhile, a long-overdue digital strategy has transformed M&S into one of the UK’s leading online retailers. These changes, combined with £300 million in annual cost savings, have set the stage for success.
By 2023, M&S was gaining market share in food and clothing, with earnings exceeding expectations. The share price has surged from £1 in late 2022 to touch £4 in recent weeks, yet we see further upside, as the company’s long-term earnings potential remains undervalued.
IAG (LON:IAG)
IAG is one of Europe’s “big three” airline groups, with a strong presence across passenger, cargo, and loyalty businesses, and through its partnership with American Airlines, a particularly dominant position in the highly profitable transatlantic market.
With a high-quality management team and a strengthened balance sheet, we believe IAG’s shares are presently undervalued. The company has consistently delivered strong and growing profitability both before and after the Covid pandemic. Trading on just 6x earnings and offering a free cashflow yield of over 10%, the shares appear compellingly valued. Meanwhile, with the dividend reinstated at the company’s recent interim results, shareholders look set to be well rewarded in the years ahead.
Craig Martin, Chairman, Dynam Capital, the manager of the Vietnam Holding Investment Trust
Find out more about Vietnam Holding here.
FPT Corporation (FPT: HOSE)
FPT is a leading IT services provider in Vietnam, with a market capitalization of USD 7.6 billion as of August 30, 2024. Over the years, FPT has positioned itself as a key player in high-growth sectors, underpinned by its strong focus on technology, global expansion strategy, and diversified business model encompassing IT services, telecoms, and education. The company is also a well-known distributor and retailer of IT products and a key player in the education sector, with programs spanning multiple levels for 145,000 students nationwide.
In 2023, the company achieved a profit before tax (PBT) of USD 430 million and generated overseas IT service revenues of USD 1 billion. With a commitment to innovation and leveraging digital transformation trends, FPT continues to expand its global footprint, including notable success in the Japanese market. The company currently operates across more than 30 countries and territories. This extensive international network enables FPT to deliver diverse IT services and solutions globally, serving clients in sectors such as automotive, finance, and healthcare. The company has successfully transformed itself from an IT outsourcing service provider to an end to-end digital transformation partner.
FPT’s ability to combine on-the-job training with academic excellence, focus on innovation, and strategic investments in global markets positions it as a long-term growth story in Vietnam’s technology and education sectors.
Mobile World Investment Corporation (MWG: HOSE)
“Founded in 2004 as a single store selling mobile phones, MWG has grown to become Vietnam’s largest retailer by revenue and physical store count, now exceeding 5,000 locations. MWG operates under several brands, offering a wide range of merchandise, including consumer electronics, groceries, and pharmaceuticals. As of the end of 2023, the company employed over 60,000 people.
As a modern-trade consolidator, MWG has revolutionised the Vietnamese retail landscape by continuously expanding its footprint, exploring new formats, and diversifying product offerings to meet evolving consumer needs. MWG now commands over 50% market share in mobile phones and consumer electronics, while its grocery chain ‘Bach Hoa Xanh’ has recently become the market leader in terms of revenue. In addition to its core brick-and-mortar business, MWG has been enhancing its e-commerce capabilities to respond to the growing trend of online shopping in Vietnam. The company has invested significantly in its online platforms and logistics infrastructure to better serve customers and compete with other major e-commerce players in the market. Online revenue accounted for 14% of total revenue in 2023, with a transaction value of USD 700 million, positioning MWG among the top e-commerce players in Vietnam. The company’s omni-channel approach, supported by its extensive store network, fast delivery, and customer-centric culture, is a key competitive advantage.
MWG’s innovative approach to retailing, robust market position, and strategic diversification make it a compelling choice for investors seeking exposure to Vietnam’s retail sector. Its ability to adapt to consumer trends and capitalize on untapped opportunities underscores its potential for sustained value creation.”
Gervais Williams, Fund Manager, The Diverse Income Trust plc
AO World (LON:AO)
“Unfortunately, we are working on the assumption that 2025 will be an unsettled year, marked by rising unemployment due to the National Insurance increase, along with US tariffs that interrupt global trade. In a tough market, typically the strong become stronger, whilst the weak lose out. AO World is, in our view, a strong supplier of household electricals. Specifically, we believe AO.com’s Five Star Membership scheme could become the consumer route of choice when buying household electricals. Additional market share should help drive extra efficiencies, and hence support AO’s cash generation. Ultimately, it’s those generating extra surplus cash that hold all the aces in tough periods.”
TP ICAP (LON:TCAP)
“In our view, TP ICAP, is a leading provider of liquidity to the global credit markets, at a time when global markets are highly volatile. Furthermore, as it networks its Liquidnet platform with the global banks in 2025, we believe its market position should further improve. Alongside, they are looking to bring in a new investor into their Parameter data subsidiary. In short, we believe all this should help drive up their cash generation. Not at all bad for a company standing on a current dividend yield of 5.6%. As with AO, in our view, the strong companies should get stronger, and TP ICAP appears very well placed for 2025.”
Charles Luke, Fund Manager, abrdn Murray Income Trust
Find out more about abrdn Murray Income Trust here
Haleon (LON:HLN)
“We believe that Haleon, a leading consumer healthcare business, is an attractive investment. The company has powerful market positions across five major consumer healthcare categories benefitting from strong and well-known brands. These five categories are Oral Health (with brands including Sensodyne), Vitamins, Minerals and Supplements (Centrum), Pain Relief (Panadol), Respiratory (Flonase) and Digestive Health (Tums). Revenues are globally diversified and around 30% of revenues derive from faster growing emerging markets. Attractive long-term drivers include ageing populations, a greater consumer focus on health and wellness and a sizeable unmet need (around 40% of adults suffer from gum disease but don’t use a specialist toothpaste like Sensodyne). Other attractive characteristics of consumer healthcare include limited private label competition, a relatively low level of cyclicality and relative price insensitivity. Haleon’s medium term financial guidance is to grow its revenues organically between 4-6% and to generate operating profit ahead of this which should lead to appealing dividend growth.”
Rotork (LON:ROR)
“Rotork is a leading global manufacturer of actuators. The company offers attractive growth potential from a variety of different drivers: methane reduction in upstream oil and gas; robust oil and gas capex budgets; and scope for growth in water and CPI (chemicals, process and industrial) specialist segments which should lead to revenue growth of at least 5-7% per annum. The company has strong quality characteristics with attractive margins, a high return on capital employed, market leading positions, high barriers to entry (for example its strong brand, high performance and reliability, the requirement for certification, and provision of field service) and a net cash balance sheet. The company has an appealing part to play in the energy transition helping to remove methane emissions and is well placed to enable the growth of hydrogen and carbon capture and storage. We don’t believe that the company’s strong competitive position and attractive growth potential is reflected in its valuation.”
Imran Sattar, portfolio manager, Edinburgh Investment Trust
London Stock Exchange Group (LON:LSEG)
“A significant position in the portfolio is London Stock Exchange Group. LSEG is significantly diversified beyond just owning the London Stock Exchange. It is a global financial markets infrastructure and data provider serving customers across financial markets. It has mostly recurring revenue and 50%-plus margins. Its capabilities include data, indices and analytics, trade execution, clearing and risk management products and services. Its customers include a wide range of financial market participants, and increasingly corporates, who use the data for decision-making. LSEG’s data set is deep, broad, exceptionally difficult to replicate, and a significant and enduring source of competitive advantage.”
RELX (LON:REL)
“Another position we have been building up over the year is RELX. This company provides information-based analytics and decision tools for professional and business customers in sectors including risk; scientific, technical and medical; legal; and exhibitions. For example, RELX owns Elsevier – a leading global scientific publisher which alongside publishing high impact journals such as The Lancet, also provides data analytics tools. RELX has delivered an improving trajectory of both revenue and earnings growth, as the business has shifted towards higher growth analytics and decision tools. The company’s approach is to price new and improved tools according to the value provided to customers. Its philosophy is to adopt a long-term approach, partnering with customers to deliver added value.”