Rathbone Global Opportunities manager James Thomson is hunkering down with 'recession-resistant' stocks and avoiding companies that would be worst hit by economic slowdown, as he braces for more volatility from markets.
‘If you think we’re heading for a global economic boom and a period of permanently higher trend growth then you should sell this fund,’ he said.
‘You will want the companies most geared into that – value stocks in industrials, commodities, and financial sectors. But I don’t believe that, and most of the real world doesn’t feel that.’
Thomson is actively avoiding these types of companies on concerns of a slowdown, despite the global stock market rally that has greeted investors in 2019 following last year's falls.
‘I’m comfortable avoiding emerging markets – the most geared economies to global growth – avoiding commodities, most industrials, and banks… and small caps,’ he said.
‘If this is a dead cat bounce, you want to avoid the most economically sensitive sectors and countries.’
Thomson, a manager on the £1.4 billion fund since 2003, boasts a strong track record. He has delivered the third best return, of 527%, in the Investment Association's Global sector over that period, though that was before the launches of Fundsmith Equity and Lindsell Train Global Equity, which have since eclipsed rivals.
Among the stocks Thomson has been selling are video games stocks Activision Blizzard (ATVI.O) and Electronic Arts (EA.O) on ‘earnings growth fears, stale innovation, and the prolonged impact of rival Fortnite’.
Thomson also ditched tobacco holdings last year, arguing growth from new reduced-risk, next generation products was less robust and citing fears of a further clampdown from regulators.
While tobacco had been a safe haven in previous years it is ‘anything but as volumes fall’, he said. ‘The sector looks cheap but it is too controversial and we sold all our exposure in April.'
Thomson (pictured) said he was balancing the ‘economically sensitive, higher beta stocks’ in the portfolio with food and beverage companies, staple services, and healthcare companies, which he described as the ‘defensive, weatherproof’ part of the portfolio.
This includes potato products maker Lamb Weston (LW.N) that is second only to McCain in market share.
Thomson said ‘everywhere in the world serves chips’ and they were one of the most profitable dishes on a menu, with ‘85% margins’.
Growth stocks, particularly technology companies, do still have a place in the fund but Thomson is picky about the ‘broad church’ of technology businesses.
Last year he sold Facebook (FB.O) ‘fearing users were increasingly getting turned off the core Facebook app where time spent in engagement was dropping’.
He admitted that had not yet filtered through to falling advertising spend but said ‘if the trend continues then we think it will’.
Conversely, Amazon (AMZN.O) has been the top performing stock in the fund over five years and ‘the outlook is very strong as it enters new markets and presses its dominant position in existing markets’.
The fund also has a holding in Google owner Alphabet (GOOGL.O), which ‘dominates online advertising’ but Thomson has refused to take a stake in Netflix (NFLX.O) ‘because of high content costs that they have to pay to generate TV shows and new movies’.